<PAGE>
As filed with the Securities and Exchange Commission on May 24, 1996
Registration No.
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------------------------
SOUTH STREET FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
North Carolina 6036 56-1973261
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
155 West South Street
Albemarle, North Carolina 28001
(704) 982-9184
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
----------------------
CARL M. HILL, President
South Street Financial Corp.
155 West South Street
Albemarle, North Carolina 28001
(704) 982-9184
(Name and address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
EDWARD C. WINSLOW III
JEAN C. BROOKS
Brooks, Pierce, McLendon,
Humphrey & Leonard, L.L.P.
2000 Renaissance Plaza
Post Office Box 26000
Greensboro, North Carolina 27420
----------------------
Approximate date of commencement of the 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 ]
----------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to be Amount to Offering Price Aggregate Registration
Registered be Registered Per Share Offering Price Fee
==============================================================================================
<S> <C> <C> <C> <C>
Common Stock, no par value 4,496,500/(1)/ $10.00 $44,965,000 $15,505.17
==============================================================================================
</TABLE>
(1) The estimated maximum number of shares to be registered is based upon 15%
above the maximum of the valuation range of Home Savings Bank of Albemarle,
S.S.B. and the Registrant, as established by an independent appraisal,
divided by the proposed offering price per share.
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.
================================================================================
<PAGE>
SOUTH STREET FINANCIAL CORP.
CROSS-REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
Item Caption or Location
Number in Prospectus
- ------ -------------------------------------------
<S> <S> <C>
1 Forepart of the Registration Statement and Front Cover Page
Outside Front Cover Page of Prospectus
2 Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Table of
Prospectus Contents;
Outside Back Cover Page
3 Summary Information, Risk Factors and Ratio of Summary; Selected Financial and Other
Earnings to Fixed Charges Data of Home Savings; Risk Factors
4 Use of Proceeds Summary; Use of Proceeds
5 Determination of Offering Price Summary; The Conversion
6 Dilution Not Applicable
7 Selling Security Holders Not Applicable
8 Plan of Distribution Summary; Use of Proceeds; The Conversion
9 Description of Securities to be Registered Dividend Policy; Description of Capital
Stock; Anti-Takeover Provisions Affecting
The Holding Company and Home Savings
10 Interests of Named Experts and Counsel Not Applicable
11 Information with Respect to the Registrant Summary; Selected Financial and Other
Data of Home Savings; South Street
Financial Corp.; Home Savings of
Albemarle, S.S.B.; Dividend Policy; Market
for Common Stock; Management's
Discussion and Analysis of Financial
Condition and Operating Results; Business
of the Holding Company; Business of Home
Savings; Management of Home Savings;
Financial Statements
12 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
</TABLE>
<PAGE>
SOUTH STREET FINANCIAL CORP.
(Proposed Holding Company for Home Savings Bank of Albemarle, S.S.B.)
Anticipated Maximum of 3,910,000 Shares of Common Stock
$10.00 Per Share
South Street Financial Corp., a North Carolina corporation (the "Holding
Company"), is offering up to 3,910,000 shares of its common stock, no par value
(the "Common Stock"), in connection with the conversion of Home Savings Bank of
Albemarle, S.S.B. ("Home") from a North Carolina-chartered mutual savings bank
to a North Carolina-chartered stock savings bank (the "Conversion"). Under
certain circumstances the Holding Company may increase the amount of Common
Stock offered hereby to up to 4,496,500 shares. As part of the Conversion, the
Holding Company will become the sole stockholder and parent holding company of
Home. See "THE CONVERSION". Non-transferable rights to subscribe for shares
of Common Stock of the Holding Company ("Subscription Rights") have been granted
to (i) Home's depositors with aggregate deposits of at least $50 as of December
31, 1994 ("Eligible Account Holders"); (ii) Home's Employee Stock Ownership Plan
(the "ESOP"); (iii) Home's depositors with aggregate deposits of at least $50 as
of _________________ ("Supplemental Eligible Account Holders"); (iv) Home's
depositor and borrower members as of ________________, who are not Eligible
Account Holders or Supplemental Eligible Account Holders ("Other Members"); and
(v) directors, officers and employees of Home who are not Eligible Account
Holders, Supplemental Eligible Account Holders or Other Members, in the
priorities and subject to the limitations described herein (the "Subscription
Offering").
(cover continued on next page)
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" ON PAGE 16. THE SHARES OF
COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION (THE "FDIC") OR ANY OTHER
GOVERNMENT AGENCY, MAY LOSE VALUE AND
ARE NOT GUARANTEED BY THE
HOLDING COMPANY OR HOME.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "SEC"), THE ADMINISTRATOR, SAVINGS INSTITUTIONS
DIVISION, NORTH CAROLINA DEPARTMENT OF COMMERCE (THE "ADMINISTRATOR"), ANY STATE
SECURITIES COMMISSION, OR THE FDIC; NOR HAS THE SEC, THE ADMINISTRATOR, ANY
SUCH STATE COMMISSION, OR THE FDIC PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS (THE "PROSPECTUS"). ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
================================================================================
<TABLE>
<CAPTION>
Estimated
Underwriting, Estimated Net
Purchase Price Marketing and Conversion
Other Fees and Proceeds/(4)/
Expenses/(3)/
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share at Minimum $10.00 $.37 $9.63
Per Share at MidPoint $10.00 $.34 $9.66
Per Share at Maximum $10.00 $.32 $9.68
Per Share at Maximum, as
adjusted $10.00 $.31 $9.69
Total at Minimum/(1)/ $28,900,000 $1,064,000 $27,836,000
Total at Midpoint/(1)/ $34,000,000 $1,162,000 $32,838,000
Total at Maximum/(1)/ $39,100,000 $1,260,000 $37,840,000
Total at Maximum, as $44,965,000 $1,372,000 $43,593,000
adjusted /(2)/
================================================================================
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by Ferguson
& Co., LLP ("Ferguson") dated April 30, 1996, which states that the
estimated aggregate pro forma market value of the Holding Company and Home
ranged from $28,900,000 to $39,100,000 ("Valuation Range") or between
2,890,000 and 3,910,000 shares of Common Stock at the purchase price of
$10.00 per share. See "THE CONVERSION -- Purchase Price of Common Stock
and Number of Shares Offered".
(2) As adjusted to give effect to an increase in the number of shares that
could be sold in the Conversion of up to 15% above the maximum of the
Valuation Range, without the resolicitation of subscribers or any right to
cancel subscription orders, to reflect changes in market and financial
conditions following commencement of the Subscription and Community
Offerings (as hereinafter defined).
(3) Consists of the estimated costs to Home and the Holding Company arising
from the Conversion, including estimated fixed expenses of approximately
$526,380 at the midpoint of the Valuation Range (including allocable out-
of-pocket expenses to be paid to Trident Securities, Inc. ("Trident
Securities")) and a management fee and sales commissions to be paid to
Trident Securities, which fees and commissions are estimated to be between
$537,802 and $733,438 at the minimum and maximum, as adjusted, of the
Valuation Range, respectively. See "PRO FORMA DATA" for the assumptions
used to arrive at these estimates. Such fees may be deemed to be
underwriting fees.
(4) Includes estimated net proceeds from the sale of 8% of the shares to be
issued which are to be purchased by Home's ESOP with funds loaned to the
ESOP by the Holding Company. Actual net proceeds may vary substantially
from the estimated amount, depending upon the number of shares sold in the
Offerings (as hereinafter defined), actual expenses and other factors. See
"USE OF PROCEEDS", "CAPITALIZATION", "PRO FORMA DATA" and "THE CONVERSION -
- Purchase Price of Common Stock and Number of Shares Offered".
TRIDENT SECURITIES, INC.
The date of this Prospectus is __________, 1996.
<PAGE>
Any shares of Common Stock not subscribed for in the Subscription Offering
will be offered for sale in a community offering (the "Community Offering") to
members of the general public with first priority being given to natural persons
or trusts of natural persons residing in Stanly County, North Carolina and
second priority being given to natural persons or trusts of natural persons
residing in Anson, Cabarrus, Montgomery, Rowan and Union Counties, North
Carolina (the "Surrounding Counties"). The Community Offering, if one is held,
may begin at any time following commencement of the Subscription Offering. See
"THE CONVERSION --Community Offering". If necessary, any shares of Common Stock
not subscribed for in the Subscription and Community Offerings will be offered
to certain members of the general public on a best efforts basis through a
selected dealers arrangement (the "Syndicated Community Offering"). See "THE
CONVERSION -- Syndicated Community Offering". The Subscription, Community and
Syndicated Community Offerings are referred to collectively as the "Offerings".
Home and the Holding Company have engaged Trident Securities as financial
advisor and to assist in the sale of shares of Common Stock, on a best efforts
basis, in the Offerings. Trident Securities is under no obligation to purchase
any shares of Common Stock in any of the Offerings. See "THE CONVERSION --
Marketing Arrangements". Home and the Holding Company have agreed to indemnify
Trident Securities against certain claims or liabilities, including claims under
the Securities Act of 1933, as amended. See "THE CONVERSION -- Marketing
Arrangements".
The Subscription Offering will terminate at 12:00 noon, local time, on
__________, 1996 (the "Expiration Time") and the Community Offering and the
Syndicated Community Offering, if any, must be completed within 45 days after
the close of the Subscription Offering, unless extended in any case by Home and
the Holding Company, with the approval of the Administrator. The Offerings may
not be extended beyond ________, 1998. In the event an extension is approved,
subscribers would be resolicited. Subject to the foregoing, an executed Stock
Order Form, once received by Home, is irrevocable and may not be modified,
amended or rescinded without the consent of Home. See "THE CONVERSION --
Exercise of Subscription Rights and Purchases in the Community Offering".
No person (or persons exercising Subscription Rights through a single
account) or persons acting in concert may subscribe in the Conversion for more
than 40,000 shares. In addition, no person, or persons acting in concert,
together with any associates, may subscribe for more than 100,000 shares of the
Common Stock to be issued in the Conversion. However, (i) the ESOP may purchase
up to 8% of the shares issued in the Conversion; and (ii) prior to completion of
the Conversion, the Board of Directors of Home may in its absolute discretion,
without notice or resolicitation, decrease the 40,000 share limitation to an
amount not less than 1% of the shares issued in the Conversion or increase such
40,000 share limitation to an amount of up to 5% of the shares issued in the
Conversion. No person or entity may subscribe for an aggregate of less than 50
shares of the Common Stock to be issued in the Conversion. See "THE
CONVERSION -- Minimum and Maximum Purchase Limitations". Subscription Rights are
nontransferable and persons found to be attempting to transfer Subscription
Rights will be subject to forfeiture of such rights and possible further
sanctions. See "THE CONVERSION - Certain Restrictions on Transfer of
Subscription Rights; False or Misleading Order Forms".
2
<PAGE>
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
[GEOGRAPHIC MAP OF MARKET AREA]
3
<PAGE>
SUMMARY
The following summary does not purport to be complete and is qualified in
its entirety by the more detailed information and financial statements appearing
elsewhere herein. Certain terms used in this summary are defined elsewhere
herein.
South Street
Financial Corp. The Holding Company is a North Carolina corporation recently
organized by the Board of Directors of Home to acquire all
of the capital stock that Home will issue upon its
conversion from the mutual to stock form of ownership. The
conversion of Home to stock form, the issuance of Home's
capital stock to the Holding Company, and the offer and sale
of the Common Stock of the Holding Company are referred to
in this Prospectus as the "Conversion". The Holding Company
has not as yet engaged in any business. Upon completion of
the Conversion, its business will initially consist of
owning Home, investing the proceeds of the Conversion that
are retained by the Holding Company and holding the
indebtedness to be outstanding from the ESOP. The Holding
Company has received the approval of the Administrator and
the Board of Governors of the Federal Reserve System (the
"Federal Reserve") to acquire Home.
The executive office of the Holding Company is located at
155 West South Street, Albemarle, North Carolina, and its
telephone number is (704) 982-9184.
Home Savings Bank
of Albemarle,
S.S.B. Home is a North Carolina-chartered mutual savings bank and
has been in operation since 1911. Home has been a member of
the Federal Home Loan Bank ("FHLB") system since 1954. Its
deposits have been federally insured since 1954 and are now
insured by the Savings Association Insurance Fund (the
"SAIF") of the FDIC to the maximum amount permitted by law.
Home conducts business through its main office in Albemarle,
North Carolina and its branch office in Locust, North
Carolina. Its primary market area is Stanly County, North
Carolina. At March 31, 1996, Home had total assets of $167.0
million, net loans of $106.7 million, deposits of $144.3
million and equity of $20.7 million which is 12.39% of total
assets.
Home is primarily engaged in the business of attracting
retail deposits from the general public and using those
deposits to make mortgage loans secured by one-to-four
family residential real estate located in Home's primary
market area. Home also makes home equity line of credit
loans and other subordinate lien loans, loans secured by
improved nonresidential real property, loans secured by
undeveloped real property and construction loans. See
"BUSINESS OF HOME". Home has been and intends to continue to
be a community-oriented financial institution offering a
variety of financial services to meet the needs of the
communities it serves.
Highlights of Home's financial condition and operations
include:
. Profitability. For the fiscal years ended September 30,
1993, 1994 and 1995, and for the six months ended March
31, 1996, Home had net income of $3.3 million, $2.0
million, $1.9 million and $299,000, respectively, and a
return on average assets of 2.12%, 1.63%, 1.23% and
0.36%, respectively. Future profitability of Home may
be affected by changes in market interest
4
<PAGE>
rates and other factors. See "RISK FACTORS -- Potential
Impact of Changes in Interest Rates".
. Capital Position. As of March 31, 1996, Home's ratios
of Tier I capital to total assets and total capital to
risk-weighted assets were 12.39% and 30.99%,
respectively, which substantially exceeded the FDIC's
requirements. On such date, Home's ratio of net worth
to total assets, calculated under the Administrator's
regulations, was 12.65%, which substantially exceeded
North Carolina requirements. See "SUPERVISION AND
REGULATION -- Regulation of Home -- Capital
Requirements Applicable to Home".
. Level of Nonperforming Assets. On March 31, 1996 and
March 31, 1995, Home's ratio of nonperforming assets to
total assets was 0.46% and 0.64%, respectively. As of
the end of each of its last five fiscal years, Home's
ratio of nonperforming assets to total assets has not
exceeded 0.76%. See "RISK FACTORS -- Certain Lending
Considerations" and "BUSINESS OF HOME --Lending
Activities -- Nonperforming Assets and Asset
Classification".
. Interest Rate Risk. Home's management measures interest
rate risk using gap, net portfolio value, and net
interest income analyses. As of March 31, 1996, Home's
interest-earning assets less interest-bearing
liabilities maturing or repricing within one year as a
percentage of total interest-earning assets was a
negative 41.58%. As a result a significant increase in
market interest rates would affect Home's results of
operations adversely. As of March 31, 1995, $10.5
million of Home's $106.7 million in loans outstanding
were to mature or reprice within one year or less. See
"RISK FACTORS -- Potential Impact of Change in Interest
Rates" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS --
Asset/Liability Management".
. Community Orientation. Home historically has been
committed to meeting the financial needs of the
communities in which it operates. Management believes
Home is large enough to provide a range of personal and
business financial services, and yet small enough to be
able to provide such services on a personalized and
efficient basis.
The Conversion Home has been studying its strategic options for several
years. As a result of its analysis of the existing
regulatory environment, the competition it faced and other
factors, the Board of Directors of Home decided to pursue
the possibility of combining with another financial
institution with greater assets and similar management
philosophies in a "merger-conversion" transaction. On May
27, 1993, Home entered into an Agreement and Plan of
Reorganization (the "Agreement") with BB&T Financial
Corporation ("BB&T") pursuant to which Home would convert to
the stock form of ownership and simultaneously be merged
with Branch Banking and Trust Company, a wholly-owned, North
Carolina-chartered commercial bank subsidiary of BB&T. Home
and BB&T jointly terminated the Agreement on June 20, 1994.
5
<PAGE>
Home has continued to evaluate its strategic options, and
the existing management of Home now believes that it will be
in the best interest of Home to remain an independent
financial institution. As a result, its Board of Directors
has adopted a Plan of Holding Company Conversion (the "Plan
of Conversion") providing for the conversion of Home from a
North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank, the concurrent
acquisition by the Holding Company of all of the capital
stock of Home issued in its conversion from mutual to stock
form and the offer and sale by the Holding Company of the
Common Stock in the Subscription Offering and, if any shares
remain, in the Community Offering and in the Syndicated
Community Offering. The Plan of Conversion must be approved
by a majority of the votes eligible to be cast by the
members of Home at a special meeting to be held on
_______________, 1996 (the "Special Meeting").
Consummation of the Conversion is also contingent upon
receipt of the approvals of the Administrator and the
Federal Reserve which are necessary for the Holding Company
to acquire Home and the approvals of the FDIC and the
Administrator which are necessary for Home to convert from
mutual to stock form. The Administrator has conditionally
approved the Conversion and the Holding Company's
acquisition application, subject to approval by Home's
members and satisfaction of certain other conditions. The
Federal Reserve has conditionally approved the Holding
Company's acquisition application, subject to the
satisfaction of certain conditions. The FDIC has issued a
conditional notification that it does not intend to object
to the Conversion, subject to certain conditions. See "THE
CONVERSION -- General".
If the Conversion is not approved by the members at the
Special Meeting or an adjournment thereof, no Common Stock
will be issued, Home will remain a North Carolina-chartered
mutual savings bank, all subscription funds will be returned
promptly, with interest at Home's passbook savings rate, and
all deposit withdrawal authorizations will be canceled
without any action on the part of subscribers or purchasers.
The Offerings Pursuant to the Plan of Conversion, between 2,890,000 shares
and 3,910,000 shares of Common Stock are being offered by
the Holding Company at the price of $10.00 per share in the
Subscription Offering to the following persons in the
following order of priority: (i) Eligible Account Holders ;
(ii) the ESOP; (iii) Supplemental Eligible Account Holders;
(iv) Other Members who are not Eligible Account Holders or
Supplemental Eligible Account Holders; and (v) directors,
officers and employees of Home who are not Eligible Account
Holders, Supplemental Eligible Account Holders or Other
Members. See "THE CONVERSION -- Subscription Offering".
Shares of Common Stock not subscribed for in the
Subscription Offering will be offered in a Community
Offering to members of the general public, with first
priority given to natural persons or trusts of natural
persons who are residents of Stanly County, North Carolina
and with second priority given to natural persons or trusts
of natural persons who are residents of the Surrounding
Counties, including IRAs, Keogh accounts and similar
retirement accounts established for the benefit of natural
persons who are residents of Stanly County and the
Surrounding Counties. The Holding Company and Home have the
absolute right to reject orders in the Community Offering in
whole or in part. See "THE CONVERSION -- Community
Offering". If there is a Community Offering, it is
anticipated that all shares of Common Stock not subscribed
for in the Community Offering will be offered for sale
6
<PAGE>
by the Holding Company to the general public in the
Syndicated Community Offering. See "THE CONVERSION --
Syndicated Community Offering".
The Subscription Offering and Subscription Rights in the
Subscription Offering expire at the Expiration Time, which
is 12:00 noon, local time, on _____________, 1996, unless
extended. The Community Offering, if any, may begin at any
time following commencement of the Subscription Offering and
may terminate on any day after the Expiration Time at the
discretion of Home without prior notice, but not later than
[45 days after Expiration Time], 1996, unless extended with
the approval of the Administrator. The Offerings may not be
extended beyond [2 years from date of Special Meeting],
1998.
Stock Purchase
Limitations The maximum aggregate number of shares of Common Stock which
may be purchased in the Conversion by any person or entity
(or persons or entities exercising Subscription Rights
through a single account), or group of persons or entities
acting in concert (other than the ESOP), is 40,000 shares
(or an aggregate dollar amount of $400,000). In addition, no
person or entity, or group of persons or entities acting in
concert, together with any associates, may subscribe for
more than 100,000 shares of Common Stock sold in the
Conversion. Home's Board of Directors has the right, at any
time prior to completion of the Conversion, to decrease the
40,000 share maximum purchase limitation to an amount not
less than 1% of the number of shares issued in the
Conversion or increase such 40,000 share limitation to an
amount of up to 5% of the shares issued in the Conversion.
Any decrease or increase in the 40,000 share limitation will
be without notice to, or resolicitation of, subscribers and
without a resolicitation of proxies in connection with the
Special Meeting.
No person or entity may subscribe for less than 50 shares of
Common Stock, or an aggregate dollar amount of less than
$500. See "THE CONVERSION --Minimum and Maximum Purchase
Limitations".
Restrictions on
Transfer of
Subscription
Rights Prior to the completion of the Conversion, no person may
transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the
Subscription Rights issued under the Plan of Conversion or
the shares of Common Stock to be issued upon their exercise.
Each person exercising Subscription Rights will be required
to certify that the purchase of Common Stock is solely for
the purchaser's own account and that there is no agreement
or understanding regarding the sale or transfer of such
shares. See "THE CONVERSION -- Certain Restrictions on
Transfer of Subscription Rights; False or Misleading Order
Forms" in this Prospectus. Subscription Rights are
nontransferable and persons found to be attempting to
transfer Subscription Rights will be subject to the
forfeiture of such rights and possible further sanctions.
The Holding Company and Home will refer to the Administrator
any situations that they believe may involve a transfer of
Subscription Rights and will not honor orders known or
believed by them to involve the transfer of such rights.
Appraisal The Plan of Conversion requires that the aggregate purchase
price of the Common Stock be based upon an independent
valuation of the estimated aggregate pro forma market value
of the Holding Company and Home. Ferguson, an independent
financial consulting firm, has advised Home and the Holding
Company that in its opinion, at April 30, 1996, the
Valuation Range of the aggregate estimated pro forma market
value of the Holding Company and Home was from $28,900,000
to
7
<PAGE>
$39,100,000. The appraisal will be reviewed and, if
appropriate, revised by Ferguson upon conclusion of the
Offerings. Any change in the total dollar amount of the
Offerings outside of the current Valuation Range will be
subject to the receipt of an updated appraisal confirming
such valuation and regulatory approval. The appraisal by
Ferguson is not intended and should not be construed as a
recommendation of any kind as to the advisability of
purchasing the Common Stock. See "MARKET FOR COMMON STOCK",
"PRO FORMA DATA" and "THE CONVERSION -- Purchase Price of
Common Stock and Number of Shares Offered".
Stock Pricing and
Number of Shares
to be Offered The purchase price of the Common Stock offered in the
Subscription Offering and the price at which the Common
Stock is sold in the Community and Syndicated Community
Offerings, if any, will be $10.00 per share. The aggregate
dollar amount of Common Stock that may be sold in the
Conversion will be determined by the Board of Directors of
Home and the Holding Company based upon the independent
appraisal of the aggregate pro forma market value of the
Holding Company and Home prepared by Ferguson. Depending on
market and financial conditions following commencement of
the Subscription Offering, the number of shares offered and
sold in the Conversion may be increased or decreased.
However, the aggregate dollar amount of Common Stock that
may be sold in the Conversion will not be more than
$44,965,000 or less than $28,900,000 without a
resolicitation of subscribers. Any change in the total
dollar amount of the Offerings outside of the current
Valuation Range will be subject to the receipt of an updated
appraisal confirming such valuation and regulatory
approvals. With the consent of the Administrator and the
FDIC and in order to reflect changes in market and financial
conditions following commencement of the Subscription
Offering, the aggregate purchase price of the shares of
Common Stock issued in the Conversion may be increased up to
15% above the maximum of the Valuation Range without any
resolicitation of subscriptions or right to cancel, rescind
or change subscription orders. See "THE CONVERSION --
Purchase Price of Common Stock and Number of Shares
Offered".
Use of Proceeds The net proceeds from the sale of the Common Stock in the
Conversion, including shares purchased by the ESOP with
funds loaned by the Holding Company, are estimated to be
between $27,836,000 and $37,840,000 depending upon the
actual expenses of the Conversion and other factors. See
"PRO FORMA DATA". The Holding Company intends to use
approximately 8% of the gross proceeds of the Offerings
(between $2,312,000 and $3,128,000 assuming the issuance of
between 2,890,000 and 3,910,000 shares) to fund the loan
made to the ESOP to purchase shares of Common Stock in the
Conversion. After deducting the amount of such loan from the
proceeds, the Holding Company is expected to retain
approximately 50% of the remaining net proceeds from the
issuance of the Common Stock. The Holding Company will
invest these proceeds primarily in interest-bearing
deposits, U.S. government and federal agency securities with
terms of up to five years. See "USE OF PROCEEDS".
The remainder of the net proceeds from the sale of the
Common Stock will be paid by the Holding Company to Home in
exchange for all of the capital stock of Home. The net
proceeds paid to Home will become part of Home's general
funds, and will be invested in mortgage and other loans and
investments consisting primarily of U.S. government and
federal agency obligations in accordance with Home's lending
and
8
<PAGE>
investment policies. Net proceeds will also be used for
other general corporate purposes, including, possibly,
opening another branch office, although Home has no existing
plans to open any additional office in the immediate future.
The relative amounts to be invested in each of these types
of investments will depend upon loan demand, rates of return
and asset/liability matching considerations at the time the
investments are made. Management is not able to predict the
yields which will be produced by the investment of the
proceeds of the Offerings because such yields will be
significantly influenced by general economic conditions and
the interest rate environment existing at the time the
investments are made.
The Board of Directors of Home intends to adopt a Management
Recognition Plan (the "MRP") following the Conversion. The
MRP will not be implemented prior to its approval by the
stockholders of the Holding Company. If the MRP proposed by
Home is approved by the stockholders, the MRP will acquire a
number of shares of Common Stock equal to 4% of the number
of shares issued in the Conversion. See "MANAGEMENT OF
HOME -- Proposed Management Recognition Plan". Such shares
may either be acquired in the open market or acquired
through the Holding Company's issuance of authorized but
unissued shares. In the event shares are acquired in the
open market, the funds for such purchase will be provided by
Home from the proceeds of the Conversion. It is estimated
that between 115,600 and 156,400 shares will be acquired by
the MRP, assuming the issuance of between 2,890,000 and
3,910,000 shares in the Conversion. If all such shares were
acquired by the MRP in the open market, and if such shares
were acquired at a price of $10.00 per share, Home would
contribute between $1,156,000 and $1,564,000, respectively,
to the MRP for this purpose. The price per share paid by the
MRP could be more or less than $10.00 per share, which would
change the total contribution to the MRP accordingly. See
"USE OF PROCEEDS".
Dividends The Board of Directors of the Holding Company currently
intends to establish a dividend policy following the
Conversion to pay a regular quarterly cash dividend at a
rate to be determined. Payment of dividends will be subject
to determination and declaration by the Holding Company's
Board of Directors. The Board of Directors will periodically
review its dividend policy in view of the operating results
and financial condition of the Holding Company and Home, net
worth and capital requirements, regulatory restrictions, tax
consequences, industry standards, and general economic
conditions, and it will authorize cash dividends to be paid
if it deems such payment appropriate and in compliance with
applicable law. In addition, the Board of Directors may
determine from time to time that it is prudent to pay
special cash dividends. Special cash dividends, if paid, may
be in addition to, or in lieu of, regular cash dividends.
The Board will determine whether to pay special cash
dividends based upon its review of the Holding Company's
current and anticipated needs for capital and its current
and anticipated levels of capital and earnings. Special
dividends will not be paid during periods when the Board
determines that the Holding Company needs funds or that it
can deploy funds at desirable levels of profitability. On
the other hand, the Board of Directors may decide to pay
special dividends at times when the Board determines that
payment of such dividends uses such funds to greater
advantage than deploying them in the Holding Company's
operations. There can be no assurance that any dividends
will in fact be paid on the Common Stock or that, if paid,
any such dividends will not be reduced or eliminated in
future periods. The Holding Company and Home have agreed
with the FDIC that any cash dividends paid to stockholders
during the twelve-month period following the closing of the
Conversion will be paid out of accumulated earnings and
profits
9
<PAGE>
(as computed for federal income tax purposes) and will not
constitute or be treated for tax purposes as returns of
capital to stockholders. See "DIVIDEND POLICY". The ability
of the Holding Company to pay dividends may be dependent
upon the Holding Company's receipt of dividends from Home.
Under current North Carolina regulations, Home could not
declare or pay a cash dividend if the effect thereof would
be to reduce its net worth to an amount which is less than
the minimum required by the FDIC and the Administrator. In
addition, for a period of five years after consummation of
the Conversion, Home will be required, under existing
regulations, to obtain the prior written approval of the
Administrator before it can declare and pay a cash dividend
on its capital stock in an amount in excess of one-half the
greater of (i) its net income for the most recent fiscal
year or (ii) the average of its net income after dividends
for the most recent fiscal year and not more than two of the
immediately preceding fiscal years, if applicable. See
"SUPERVISION AND REGULATION -- Regulation of Home --
Restrictions on Dividends and Other Capital Distributions".
In addition, see "TAXATION" for a discussion of federal
income tax provisions that may limit the ability of Home to
pay dividends to the Holding Company without incurring a
recapture tax.
Market for Common
Stock The Holding Company, as a newly organized company, has never
issued capital stock, and consequently, there is no market
for the Common Stock at this time. The Holding Company has
received conditional approval to have the Common Stock
listed on the Nasdaq National Market System ("Nasdaq") under
the symbol "_______". There can be no assurance that the
Common Stock will in fact be listed, or will trade, on
Nasdaq. A public market having the desirable characteristics
of depth, liquidity and orderliness will depend upon the
presence in the market place of both willing buyers and
willing sellers at any given time. There can be no
assurances that an active trading market will develop and be
maintained. See "MARKET FOR COMMON STOCK".
Stock Ownership by
Management The directors and executive officers of the Holding Company
and of Home and their associates currently anticipate
subscribing for Common Stock in the aggregate amount of
$695,000, or 69,500 shares. As a result, such persons
anticipate subscribing for 1.78% to 2.40% of the shares of
Common Stock issued in the Conversion based upon the maximum
and minimum of the Valuation Range, respectively. See
"ANTICIPATED STOCK PURCHASES BY MANAGEMENT". In addition, it
is expected that the ESOP will subscribe for 8% of the
shares of Common Stock issued in the Conversion (between
231,200 and 312,800 shares, assuming the issuance of between
2,890,000 and 3,910,000 shares). See "MANAGEMENT OF HOME --
Employee Stock Ownership Plan". The Board of Directors of
the Holding Company intends to adopt a stock option plan
(the "Stock Option Plan") following the Conversion. The
Stock Option Plan will not be implemented prior to its
approval by the stockholders of the Holding Company. If the
MRP and the Stock Option Plan are approved by the
stockholders of the Holding Company at a meeting of
stockholders which may be held no earlier than six months
following the Conversion, directors, officers and employees
of the Holding Company and Home will also receive restricted
stock grants for a number of shares of Common Stock equal to
4% of the number of shares issued in the Conversion under
the MRP and will receive options to purchase a number of
shares of Common Stock equal to 10% of the number of shares
issued in the Conversion under the Stock Option Plan. If (i)
the Stock Option Plan is approved by the stockholders of the
Holding Company and all of the stock options which could be
granted under the Stock Option Plan are
10
<PAGE>
granted and exercised, (ii) the MRP is approved by the
stockholders of the Holding Company and all of the MRP
shares which could be granted are granted and issued, and
(iii) the Holding Company did not issue any additional
shares of its Common Stock, the shares held by directors and
executive officers and their associates as a group,
(including (a) shares purchased outright in the Conversion,
(b) shares purchased by the ESOP, (c) shares purchased
pursuant to the Stock Option Plan and (d) shares granted
under the MRP), would give such persons effective control
over as much as 19.50% or 18.88%, at the minimum and maximum
of the Valuation Range, respectively, of the Common Stock
issued and outstanding. See "-- Benefits to Directors and
Officers" and "MANAGEMENT OF HOME -- Proposed Management
Recognition Plan" and "-- Proposed Stock Option Plan".
Benefits to
Directors and
Officers In connection with the Conversion, certain benefits will be
provided to directors, officers and employees of Home.
Employment Agreements. In connection with the Conversion,
Home will enter into employment agreements with Carl M.
Hill, the President and Chief Executive Officer of Home, and
R. Ronald Swanner, Executive Vice President of Home. The
employment agreements provide for initial annual salaries of
$157,320 for Mr. Hill and $101,160 for Mr. Swanner. See
"MANAGEMENT OF HOME-- Employment Agreements".
Restricted Stock Grants. Pursuant to the proposed MRP, which
the Boards of Directors of the Holding Company and Home
intend to approve, and which is subject to stockholder
approval, directors, officers and certain employees of Home
would receive restricted stock grants of a number of shares
of Common Stock equal to 4% of the shares issued in the
Conversion (between 115,600 and 156,400 shares, assuming the
issuance of between 2,890,000 and 3,910,000 shares).
Assuming that the shares issued pursuant to the MRP have a
value of $10.00 per share, such shares would have a value of
between $1,156,000 and $1,564,000. No officer may receive
more than 25%, and non-employee directors may not receive
more than 5% individually, or 30% in the aggregate, of
shares issued by the MRP.
It is currently expected that 5% of the shares available
under the MRP will be granted to each non-employee director.
If 3,910,000 shares were issued in the Conversion, each non-
employee director would receive restricted stock grants of
7,820 shares which, assuming such shares had a value of
$10.00 per share, would have a value of $78,200.
It is currently expected that Home's two executive officers,
Carl M. Hill and R. Ronald Swanner, will be granted 25% and
20%, respectively, of the shares available under the MRP. If
3,910,000 shares were issued in the Conversion and if such
shares had a value of $10.00 per share, Mr. Hill and Mr.
Swanner would receive restricted stock grants of 39,100
shares and 31,280 shares, respectively, having a value of
$391,000 and $312,800, respectively. Upon approval of the
MRP, all of the other employees of Home will be granted, in
the aggregate, 35% of the shares available under the MRP.
Assuming the issuance of 3,910,000 shares in the Conversion,
the other employees would receive an aggregate of 54,740
shares which, assuming such shares had a value of $10.00 per
share, would have a value of $547,400.
11
<PAGE>
If the MRP is submitted to and approved by the stockholders
of the Holding Company at a meeting of the stockholders to
be held no sooner than six months following the Conversion,
the MRP will provide that shares granted under the MRP will
be forfeited unless recipients of grants satisfy certain
vesting requirements. If the MRP is submitted to and is
approved by the stockholders of the Holding Company at a
meeting of stockholders held no sooner than one year
following the Conversion, the MRP will provide that, under
certain conditions, the grants may vest on an accelerated
basis. Grants of restricted stock under the MRP will be made
at no cost to recipients. See "MANAGEMENT OF HOME --
Proposed Management Recognition Plan".
Stock Options. Pursuant to the proposed Stock Option Plan,
which the Boards of Directors of the Holding Company and
Home intend to approve, and which is subject to stockholder
approval, directors and employees of Home would receive
options to purchase a number of shares of Common Stock equal
to 10% of the shares issued in the Conversion (between
289,000 and 391,000 shares, assuming the issuance of between
2,890,000 and 3,910,000 shares). No officer may receive more
than 25%, and non-employee directors may not receive more
than 5% individually or 30% in the aggregate, of stock
options granted under the Stock Option Plan.
It is currently expected that 5% of the shares available
under the proposed Stock Option Plan, will be granted to
each non-employee director. If 3,910,000 shares were issued
in the Conversion, each non-employee director would receive
options to purchase 19,550 shares. It is currently expected
that Mr. Hill and Mr. Swanner will be granted options to
purchase 25% and 20%, respectively, of the shares available
under the Stock Option Plan. If 3,910,000 shares were issued
in the Conversion, Mr. Hill and Mr. Swanner would receive
options to purchase 97,750 shares and 78,200 shares,
respectively. Under the proposed Stock Option Plan, the
other 11 officers of Home will be granted, in the aggregate,
options to purchase 35% of the shares available under the
Stock Option Plan. Assuming the issuance of 3,910,000 shares
in the Conversion, the other officers would receive options
to purchase an aggregate of 136,850 shares.
If the Stock Option Plan is submitted to and approved by the
stockholders of the Holding Company at a meeting of the
stockholders to be held no sooner than six months following
the Conversion, the provisions of the Stock Option Plan will
provide that options granted under the Stock Option Plan
will be forfeited unless recipients of grants satisfy
certain vesting requirements. If the Stock Option Plan is
submitted to and approved by the stockholders of the Holding
Company at a meeting of stockholders held no sooner than one
year following the Conversion, the provisions of the Stock
Option Plan will provide that under certain conditions, the
grants may vest on an accelerated basis. The exercise price
of the options will be the fair market value of the Common
Stock at the time the options are granted (which will be
after the Stock Option Plan is approved by the Holding
Company's stockholders), and the options will have terms of
10 years or less. Options would be issued at no cost to
recipients. See "MANAGEMENT OF HOME -- Proposed Stock Option
Plan".
ESOP. In connection with the Conversion, Home has
established the ESOP. As part of the Conversion, the ESOP
intends to borrow funds from the Holding Company and to use
such funds to purchase 8% of the shares of Common Stock to
be issued in the Conversion, estimated to be between 231,200
and 312,800 shares, assuming
12
<PAGE>
the issuance of between 2,890,000 and 3,910,000 shares. Home
anticipates contributing approximately $312,800 plus
interest annually to the ESOP (assuming 3,910,000 shares are
issued in the Conversion and assuming the ESOP acquires its
shares at $10 a share) to enable the ESOP to meet its
principal and interest obligations under the loan. It is
expected the ESOP loan will be repaid within 10 years.
During such period, net income of Home will be reduced by an
amount equal to the funds contributed by Home to the ESOP,
less the tax benefit to Home resulting from such payments.
In accordance with Statement of Position ("SOP") 93-6
"Employers' Accounting for Employee Stock Ownership Plans"
issued by the American Institute of Certified Public
Accountants, the amount expensed by Home will be based upon
the fair value of the ESOP shares, although such accounting
treatment will not affect the actual out-of-pocket cost to
Home of the ESOP. See "RISK FACTORS -- Cost of ESOP" and
"MANAGEMENT OF HOME -- Employee Stock Ownership Plan".
Anti-Takeover
Provisions The Articles of Incorporation and Bylaws of the Holding
Company and Home contain certain restrictions that are
intended to discourage non-negotiated attempts to acquire
control of the Holding Company or Home. The Board of
Directors of the Holding Company believes that these
provisions encourage potential acquirors to negotiate
directly with the Board of Directors. However, these
provisions may discourage an attempt to acquire control of
the Holding Company which a majority of the stockholders
might deem to be in their best interests or in which they
might receive a premium over the then market price of their
shares. These provisions may also render the removal of a
director or the entire Board of Directors of the Holding
Company more difficult and may deter or delay changes in
control which have not received the requisite approval of
the Holding Company's Board of Directors. See "RISK
FACTORS -- Anti-Takeover Considerations" and "ANTI-TAKEOVER
PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME".
Risk Factors Special attention should be given to the "RISK FACTORS"
section of this Prospectus, which discusses the possible
effects of changes in interest rates on Home and the thrift
industry in general, certain lending considerations, the
cost of the ESOP, the cost and possible dilutive effect of
the proposed MRP and proposed stock option plan, the
potential disparity between SAIF and Bank Insurance Fund
("BIF") insurance premiums, risks associated with Home's
primary market area, potential financial institution
regulation and legislation, competition, dependence on key
personnel, certain anti-takeover considerations, the
characteristics of the independent appraisal, the limited
market for the Common Stock, restrictions on dividends,
income tax consequences of Subscription Rights, voting
control of officers and directors and certain other matters
that potential purchasers should consider before deciding
whether to subscribe for the Common Stock offered hereby.
Recommendation of
Management The Boards of Directors and management of Home and the
Holding Company make no recommendation concerning whether
any person or entity should purchase shares of Common Stock.
Subscribers are urged to consult with their own financial
advisors with respect to suitability of an investment in the
Common Stock.
13
<PAGE>
SELECTED FINANCIAL
AND OTHER DATA OF HOME
Set forth below are summaries of historical financial and other data of
Home. The financial information for the five years ended September 30, 1995, is
derived in part from the audited financial statements of Home, and the financial
information for the six months ended March 31, 1996 and 1995 is derived from
unaudited financial statements of Home, and should be read in conjunction with
the Financial Statements and Notes to Financial Statements of Home presented
elsewhere herein and with the section of this Prospectus entitled "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS." The
unaudited financial statements reflect all adjustments, consisting of normal
recurring accruals, which are in the opinion of management, necessary for a fair
presentation of the financial position as of March 31, 1996 and the results of
operations for the six months ended March 31, 1996 and 1995. The results for the
six-month periods are not necessarily indicative of the operating results of
Home for the entire year. All averages presented in this Prospectus have been
calculated on a monthly basis unless otherwise stated.
14
<PAGE>
<TABLE>
<CAPTION>
At
March 31, At September 30,
----------- ---------------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Financial Condition Data:
Total assets $ 166,978 $ 159,863 $ 147,837 $ 157,909 $ 153,370 $ 146,003
Investment securities (1) 43,220 40,942 30,275 27,307 26,903 18,522
Loans receivable, net (2) 106,710 108,597 106,844 117,055 113,116 116,669
Mortgage-backed securities 5,987 4,529 5,325 7,076 8,175 5,753
Deposits 144,282 137,647 127,312 139,685 138,753 133,524
Equity 20,720 20,426 18,311 16,503 13,199 10,786
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended March 31, Year Ended September 30,
------------------------ ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Interest income $ 6,351 $ 5,831 $ 11,980 $ 11,994 $ 13,044 $ 13,792 $ 13,350
Interest expense 3,831 2,532 5,980 4,973 6,037 8,042 9,110
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income 2,520 3,299 6,000 7,021 7,007 5,750 4,240
Provision for loan losses 300 0 0 0 0 0 100
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net interest income after provision
for loan losses 2,220 3,299 6,000 7,021 7,007 5,750 4,140
----------- ----------- ----------- ----------- ----------- ----------- -----------
Non-interest income 62 61 126 147 206 233 188
----------- ----------- ----------- ----------- ----------- ----------- -----------
Non-interest expense:
Compensation and employee benefits 898 724 1,859 1,324 1,018 1,059 989
Other 896 684 1,351 1,833 1,126 1,296 1,167
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total noninterest expense 1,794 1,408 3,210 3,157 2,144 2,355 2,156
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes 488 1,952 2,916 4,011 5,069 3,628 2,172
Income tax expense 189 729 1,055 1,498 1,765 1,215 798
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income before cumulative effect of a
change in accounting principle 299 1,223 1,861 2,513 3,304 2,413 1,374
Cumulative effect on prior years of
changing to a different method of
accounting for income 0 0 0 485 0 0 0
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income $ 299 $ 1,223 $ 1,861 $ 2,028 $ 3,304 $ 2,413 $ 1,374
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
At or For the Six Months Ended
March 31, At or For the Year Ended September 30,
------------------------ ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Other Data: (3)
Return on average assets (4) (5) 0.36% 1.67% 1.23% 1.63% 2.12% 1.61% 1.01%
Return on average equity (4) (5) 2.87% 12.87% 9.50% 14.22% 22.25% 20.12% 13.61%
Average equity to average assets 12.72% 12.98% 12.97% 11.45% 9.54% 8.01% 7.39%
Retained earnings to end-of-period assets 12.39% 10.65% 12.76% 12.53% 10.45% 8.61% 7.39%
Interest rate spread for period (6) 2.61% 4.19% 3.59% 4.38% 4.21% 3.56% 2.72%
Average interest-earning assets to
average interest-bearing liabilities 111.98% 112.91% 112.74% 110.19% 109.77% 106.90% 106.97%
Net interest margin (7) 3.19% 4.65% 4.11% 4.72% 4.61% 3.95% 3.21%
Non-performing assets to total assets
at period end (8) 0.46% 0.64% 0.70% 0.76% 0.61% 0.05% 0.13%
Non-performing loans to total loans
at period end 0.64% 0.72% 0.87% 0.85% 0.70% 0.00% 0.00%
Allowance for loan losses to non-peforming
loans at period end 60.83% 17.39% 13.97% 14.80% 17.06% 0.00% 0.00%
Net interest income, after provision for
loan losses to non-interest expense 123.75% 234.30% 186.92% 222.39% 326.82% 244.16% 192.02%
Non-interest expense to average assets (5) 2.18% 1.92% 2.12% 2.05% 1.38% 1.57% 1.58%
Deposit accounts 15,828 15,314 17,988 17,152 18,416 15,394 15,736
Loan accounts 3,363 3,556 3,316 3,433 3,734 3,201 3,377
Number of full service banking offices 2 2 2 2 2 2 2
</TABLE>
<TABLE>
<S> <C>
(1) Includes interest-bearing deposits, Federal Home Loan Bank stock, and investment securities.
(2) Loans, net, represents gross loans less net deferred loan fees and allowance for loan losses.
(3) Ratios other than period-end ratios are based on average monthly balances.
(4) Income before cumulative effect of changes in accounting principle is used to calculate return on average
assets and return on average equity ratios.
(5) Annualized for the six months ended March 31, 1996 and 1995.
(6) The interest rate spread represents the difference between the weighted-average yield on interest-earning
assets and the weighted-average cost of interest-bearing liabilities.
(7) The net interest margin represents net interest income as a percent of average interest-earning assets.
(8) Non-performing assets include mortgage loans and consumer loans 90 days or more delinquent,
and real estate acquired in settlement of loans.
</TABLE>
15
<PAGE>
RISK FACTORS
The following factors, in addition to the information presented elsewhere
in this Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered hereby.
Potential Impact of Interest Rate Risk
The results of operations of Home, as with savings institutions generally,
are dependent to a large degree on its net interest income, which is generally
the difference between interest income from loans and investments and interest
expense on deposits and borrowings. Home's interest income and interest expense
are significantly affected by general economic conditions and by policies of the
federal government and various regulatory agencies.
Home has a one-year interest sensitivity gap of negative 41.58%, which
means that the amount of interest-earning assets maturing or otherwise repricing
within specific time periods generally is less than the amount of interest-
bearing liabilities maturing or otherwise repricing within such periods.
Accordingly, in a rising interest rate environment, absent the effect of other
factors, Home may experience a larger increase in the cost of its liabilities
relative to the yield on its assets, thus its net interest income should be
adversely affected. In a declining rate environment, Home's yield, absent the
effects of other factors, may increase more quickly than its cost of funds, thus
positively affecting its net interest income. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS -- Asset/Liability
Management".
To reduce the sensitivity of net interest income to interest rate
fluctuations, Home strives to manage the maturity and repricing relationships of
its interest-earning assets and interest-bearing liabilities. Home's principal
strategies in this regard have been to emphasize (i) shorter term fixed-rate
mortgages secured by single-family residences, (ii) the origination and
retention of adjustable rate home equity lines of credit loans; (iii) short to
intermediate term investments, (iv) the adoption of a tiered pricing program for
its certificates of deposits to encourage investment in certificates with longer
maturities, and (v) the accumulation of equity which provides a cost-free source
of funds.
Home's results of operations will continue to be significantly affected by
changes in interest rates due, among other factors, to (i) the fact that a large
percentage of Home's long-term loans have fixed rates, (ii) the fact that Home's
interest-earning assets and interest-bearing liabilities reprice at different
times and with different frequencies, (iii) the fact that interest rates on
Home's assets and liabilities respond differently to economic, market and
competitive factors, and (iv) the fact that sustained high levels of interest
rates may adversely affect real estate and lending markets in general. Changes
in the level of interest rates also can affect the amount of loans originated by
Home, 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 institutions into direct investments, such as U.S. government
and corporate securities, and other investment vehicles which, because of the
absence of federal deposit insurance premiums and reserve requirements,
generally can pay higher rates of interest than savings institutions. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATING
RESULTS --Asset/Liability Management".
Decreases in Return on Equity
As a result of the Conversion, stockholder's equity will be substantially
increased. Accordingly, the increase in equity is expected to result in a
reduction of Home's return on average equity (net income divided by average
equity) compared with historical levels, absent a corresponding increase in net
income, and it is not expected that Home will be able to increase net income in
future periods commensurate with the increase in equity. For the year ended
September 30, 1995 and for the six-month period ended March 31, 1996, Home's
return on average equity was approximately 9.50% and 2.87%, respectively.
Assuming 3,400,000 shares are sold at the midpoint of the valuation range, using
the assumptions under "PRO FORMA DATA", the pro forma return on equity for the
year ended September 30, 1995 and for the six-month period ended March 31, 1996
would have been approximately 5.00% and 2.49% (annualized), respectively.
16
<PAGE>
Risks Associated with Home's Primary Market Area
Both of Home's offices are located in Stanly County, North Carolina; the
main office is located in Albemarle, North Carolina and a full-service branch
office is located in Locust, North Carolina. Stanly County is located in the
south central section of North Carolina less than 30 miles from Charlotte, North
Carolina.
Stanly County is largely rural with a population of 56,000. Its economy is
diversified among agriculture, manufacturing and services. Over the past five
years the local economy has weakened as a result of layoffs and plant closings
by local employers. In December 1995, the North Carolina Department of Commerce
declared Stanly a "distressed county" entitling it to use state grants and tax
credits to lure industry to the area. Population and household growth, and
median and per capita income levels for Stanly County are generally lower than
comparable levels for North Carolina and the nation, while unemployment levels
are generally higher. Management regards the Stanly County market area as a low
growth area in which there is significant competition among financial services
providers for market share. See "BUSINESS OF HOME -- Competition". Due primarily
to the economic factors discussed above, Home has limited residential mortgage
lending opportunities in its local market area and does not anticipate that
residential mortgage lending opportunities will increase in the future because
of the lack of growth in the local economy. Management believes that
opportunities for future earnings growth in Home's primary market area are
limited in light of these factors.
Certain Lending Considerations
Home does not originate loans with the intention that they will be sold in
the secondary market. It currently originates a significant number of loans
which satisfy its underwriting requirements and are tailored for its local
community, but which may not satisfy various requirements imposed by the FHLMC
and FNMA, including some loans which may not satisfy FHLMC and FNMA loan-to-
value requirements, income requirements and credit history standards
("nonconforming loans"). Although management believes that many of such loans
are saleable in the secondary market, some of such loans could be sold only
after Home incurred certain costs and/or discounted the purchase price. As a
result, Home's loan portfolio is less liquid than would be the case if it did
not include any such nonconforming loans. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS --Capital Resources and
Liquidity". In addition, some types of nonconforming loans are generally thought
to have greater risks of default and nonperformance. However, Home has
historically found that its origination of nonconforming loans has not resulted
in high amounts of nonperforming loans. See "BUSINESS OF HOME -- Lending
Activities --Nonperforming Assets and Asset Classification". In addition, these
loans satisfy a need in Home's local community and generally produce a higher
yield than would be produced by conforming loans. As a result, Home plans to
continue on a selected basis to originate such nonconforming loans.
As of March 31, 1996, the ratio of Home's nonperforming assets to total
assets was 0.46%, its total nonperforming loans equaled $702,000, which includes
accruing loans delinquent 90 days or more for which interest is fully reserved
totaling $702,000. As of March 31, 1996, Home's assets which were "classified"
to indicate some degree of weakness totaled $1.5 million.
Cost of ESOP
It is expected that the ESOP will purchase 8% of the shares of Common Stock
issued in the Conversion with funds borrowed from the Holding Company. See
"MANAGEMENT OF HOME -- Employee Stock Ownership Plan". Assuming the issuance of
3,910,000 shares in the Conversion, it is expected that 312,800 shares, having a
value of $3,128,000 will be purchased by the ESOP.
It is anticipated that the ESOP will borrow from the Holding Company the
amounts necessary to purchase its shares. Home anticipates contributing
approximately $312,800 plus interest annually to the ESOP (assuming the issuance
of 3,910,000 shares in the Conversion and assuming that the ESOP acquires its
shares at $10.00 per share) to enable the ESOP to meet its principal and
interest obligations under the loan. It is expected that the ESOP loan will be
fully repaid within 10 years. During such period, net income of Home will be
reduced by an amount equal to the funds contributed
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by Home to the ESOP to enable it to meet its principal and interest obligations
under the ESOP loan, less the income tax benefit to Home resulting from such
payments. The purchase of Common Stock by the ESOP will reduce pro forma
stockholders' equity because the amount loaned is reflected as a reduction of
stockholders' equity. See "PRO FORMA DATA".
In November 1993, the American Institute of Certified Public Accountants
approved SOP 93-6, "Employers' Accounting for Employee Stock Ownership Plans"
which is effective for fiscal years beginning after December 15, 1993, and which
applies to shares of capital stock of sponsoring employers acquired by ESOPs
after December 31, 1992, that have not been committed to be released as of the
beginning of the year in which the ESOP is adopted. SOP 93-6 will, among other
things, change the measure of compensation recorded by employers from the cost
of ESOP shares to the fair value of ESOP shares. Since the fair value of the
shares following the Offerings cannot be predicted, Home cannot reasonably
estimate the impact of SOP 93-6 on its financial statements. An increase in such
fair value will cause an increase in ESOP-related expenses for accounting
purposes because Home's annual contribution will be expensed based upon the fair
value of the shares which can be released by the scheduled principal repayment.
Home's annual cash contribution to the ESOP will be based upon the actual annual
amortization requirements of the ESOP loan. The difference between the amount
expensed based upon fair value of the shares which can be released by the
scheduled principal repayment and the actual cash requirements of the ESOP loan
will be charged or credited to additional paid in capital of Home. Also,
implementation of SOP 93-6 will affect earnings per share calculations since
only the ESOP shares committed to be released (typically shares that are no
longer debt financed and shares which will be allocated to ESOP participants
when the Bank's contribution to ESOP is made each year) are included as
outstanding shares in the computation. See "PRO FORMA DATA".
Cost and Possible Dilutive Effect of the Proposed MRP and Stock Option Plan
The stockholders of the Holding Company will be asked to approve the
proposed Stock Option Plan and the proposed MRP, at a meeting of stockholders to
be held no sooner than six months following the Conversion. The plans will be
effective if approved by a majority of the votes cast by stockholders at the
meeting. Directors and executive officers and their affiliates and the ESOP will
own and have the right to vote approximately 10.40% of the shares of the Common
Stock then outstanding, assuming the sale of 2,890,000 shares of Common Stock in
the Conversion. Under the MRP, directors, officers and certain employees of Home
would be awarded an aggregate amount of Common Stock equal to 4% of the shares
issued in the Conversion. Under the Stock Option Plan, directors, officers and
employees of Home would be granted options to purchase an aggregate amount of
Common Stock equal to 10% of the shares issued in the Conversion at exercise
prices equal to the market price of the Common Stock on the date of grants.
Shares issued to directors, officers and certain employees under the MRP and the
Stock Option Plan may be from authorized but unissued shares of Common Stock or
they may be purchased in the open market. In the event the shares issued under
the MRP and the Stock Option Plan consist of newly issued shares of Common
Stock, the interests of existing stockholders would be diluted. If 3,910,000
shares of the Common Stock are issued in the Conversion, it is expected that
options to acquire 391,000 shares of the Common Stock could be granted under the
Stock Option Plan and awards of an additional 156,400 shares could be made under
the MRP. At the maximum of the Valuation Range, if all shares under the MRP and
the Stock Option Plan were newly issued, the exercise price was $10.00 for the
shares issued pursuant to the options, and all of the options were exercised,
the number of outstanding shares of Common Stock would increase from 3,910,000
to 4,457,400, the pro forma book value per share of the outstanding Common Stock
at September 30, 1995 would have been $12.90 with the plans compared with $14.10
without the plans, and the pro forma net income per share of the outstanding
Common Stock for the fiscal year ended September 30, 1995 would have been $0.62
with the plans compared with $0.77 without the plans. At March 31, 1996, the pro
forma book value per share of the outstanding shares of Common Stock would have
been $12.96 with the plans compared with $14.18 without the plans, and the pro
forma net income per share for the outstanding Common Stock for the six-month
period ended March 31, 1996, would have been $0.16 with the plans compared with
$0.21 without the plans. The cost of the shares acquired by the MRP will be
expensed equally over the five-year vesting period set forth in the MRP. If
3,910,000 shares of Common Stock are issued in the Conversion and the MRP
acquired 156,400 shares at a cost of $10.00 per share, the total annual expense
of the MRP would be $312,800 per year. See "PRO FORMA DATA" and "MANAGEMENT OF
HOME -- Proposed Management Recognition Plan" and "-- Proposed Stock Option
Plan".
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Recapitalization of SAIF, its Impact on SAIF Premiums and Possible One-Time
Recapitalization Fee
Home's savings deposits are insured by the SAIF, which is administered by
the FDIC. The assessment rate currently ranges from $0.23 to $0.31 per $100 of
an institution's domestic deposits. The FDIC also administers the BIF, which has
the same designated reserve ratio as the SAIF. The deposit insurance assessment
rate for most commercial banks and other depository institutions with deposits
insured by the BIF ranges from $0.04 to $0.31 per $100 of domestic deposits. The
existing substantial disparity in the deposit insurance premiums paid by BIF and
SAIF members places SAIF-insured savings institutions such as Home at a
significant competitive disadvantage to BIF-insured institutions.
The Balanced Budget Act of 1995, which was passed by the United States
Congress but vetoed by the President for reasons unrelated to the SAIF
recapitalization, provided for a one-time assessment currently estimated to be
0.85% of insured deposits that would fully capitalize the SAIF. It is unknown
whether this legislation will be enacted or that premiums for either BIF or SAIF
members will be adjusted in the future by the FDIC or by legislative action. If
a special assessment as described above were to be required, it would result in
a one-time charge to Home of up to $1.2 million pre-tax, assuming the special
assessment is based on deposits held at March 31, 1995.
Home incurred deposit insurance premium expense of $318,000 and $295,000 in
fiscal 1994 and 1995, respectively. A significant increase in SAIF insurance
premiums or a significant one-time fee to recapitalize the SAIF would likely
have an adverse effect on the operating expenses and results of operations of
Home. See "SUPERVISION AND REGULATION --Regulation of Home -- Insurance of
Deposit Accounts".
Financial Institution Regulation and Possible Legislation
Home is subject to extensive regulation and supervision as a North
Carolina-chartered savings bank. In addition, the Holding Company, as a bank
holding company, will be subject to extensive regulation and supervision. Any
change in the regulatory structure or the applicable statutes or regulations,
whether by the Administrator, the Federal Reserve, the FDIC, the North Carolina
Legislature or the United States Congress, could have a material impact on the
Holding Company, Home, or Home's Conversion.
The United States Congress currently has under consideration various
proposals to consolidate the regulatory functions of the four federal banking
agencies: the Office of Thrift Supervision, the FDIC, the Office of the
Comptroller of the Currency and the Federal Reserve. The outcome of efforts to
effect regulatory consolidation is uncertain. Therefore, Home is unable to
determine the extent to which legislation would affect its business, if enacted.
Competition
Home's market area is a highly competitive market, and Home faces
significant competition both in attracting deposits and in originating loans.
Home faces direct competition from a number of financial institutions, many with
a state-wide or regional presence, and, in some cases, a national presence.
Competition also arises from other savings institutions, commercial banks,
credit unions and other providers of financial services, many of which are
significantly larger than Home and, therefore, have greater financial and
marketing resources than Home. At March 31, 1996, two banks with a national
presence, two large regional banks, one smaller regional bank and one community
bank and two credit unions had branch offices located in Stanly County. At June
30, 1995, Home had a deposit market share of approximately 23% in Stanly County.
See "BUSINESS OF HOME -- Competition".
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Dependence on Key Personnel
Home depends to a considerable degree on a limited number of key management
personnel, in particular, Home's President, Carl M. Hill and Home's Executive
Vice President, R. Ronald Swanner. The loss of such personnel could adversely
affect Home's operations. Home intends to enter into employment agreements with
Mr. Hill and Mr. Swanner. Neither Home nor the Holding Company has obtained, or
expects to obtain, "key man" life insurance policies for any executive officers
of Home or the Holding Company. Management believes that Home's future success
will also depend in large part upon its ability to attract and retain qualified
personnel. There can be no assurance that Home will be successful in attracting
and retaining such personnel. See "MANAGEMENT OF HOME".
Absence of Prior Market for the Common Stock
The Holding Company, as a newly organized company, has never issued capital
stock, and consequently, there is no established market for the Common Stock at
this time. The Holding Company has received conditional approval to have the
Common Stock listed on Nasdaq under the symbol "________". There can be no
assurance that the Common Stock will in fact be listed, or will trade, on
Nasdaq. A public trading market having the desirable characteristics of depth,
liquidity and orderliness will depend upon the presence in the market place of
both willing buyers and willing sellers at any given time. No assurance can be
given that an active trading market will develop or be maintained. Purchasers of
Common Stock should consider the potentially illiquid and long-term nature of
their investment in the shares being offered hereby. See "MARKET FOR COMMON
STOCK".
Dividend Payment Limitations
Following the Conversion, the Holding Company expects to pay quarterly cash
dividends on the Common Stock; however, no assurance can be given by the Holding
Company that any dividends will in fact be declared or, if declared, what the
amount of dividends will be, or whether the declaration of such dividends, if
commenced, will continue. The Holding Company's ability to pay dividends could
be dependent upon its receipt of dividends from Home. There are regulations
which restrict Home's ability to pay dividends. The Holding Company and Home
have agreed with the FDIC that any cash dividends paid to stockholders during
the twelve-month period following the closing of the Conversion will be paid out
of accumulated earnings and profits (as computed for federal income tax
purposes) and will not constitute or be treated for tax purposes as returns of
capital to stockholders. See "DIVIDEND POLICY" and "SUPERVISION AND
REGULATION -- Regulation of Home -- Restrictions on Dividends and Other Capital
Distributions".
Income Tax Consequences of Subscription Rights
If the Subscription Rights granted in connection with the Conversion are
deemed to have an ascertainable value, receipt of such rights will be taxable to
recipients who exercise such Subscription Rights, either as ordinary or capital
gain, in an amount not in excess of such value. Whether such Subscription Rights
are considered to have any ascertainable value is an inherently factual
determination. Home has received an opinion from Ferguson stating that the
Subscription Rights do not have any value. The opinion of Ferguson is not
binding on the Internal Revenue Service ("IRS"). See "THE CONVERSION -- Income
Tax Consequences".
Anti-Takeover Considerations
Provisions in the Articles of Incorporation and Bylaws. The Holding
Company's Articles of Incorporation and Bylaws contain certain provisions that
may discourage attempts to acquire control of the Holding Company that are not
negotiated with the Holding Company's Board of Directors. These provisions may
result in the Holding Company being less attractive to a potential acquiror and
may result in stockholders receiving less for their shares than otherwise might
be available in the event of a takeover attempt. In addition, these provisions
may have the effect of discouraging takeover attempts that some stockholders
might deem to be in their best interests, including takeover proposals in which
stockholders might receive a premium for their shares over the then-current
market price, as well as making it more difficult for individual stockholders or
a group of stockholders to elect directors or to remove incumbent management.
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The Holding Company's Board of Directors believes, however, that these
provisions are in the best interests of the Holding Company and its stockholders
because such provisions encourage potential acquirors to negotiate directly with
the Board of Directors, which the Board of Directors believes is in the best
position to act on behalf of all stockholders.
These provisions include, among others, that (1) the Board of Directors has
the authority to change the number of directors within a range from five to 15;
(2) stockholders who intend to nominate a candidate for election to the Board of
Directors must give advance notice to the Secretary of the Holding Company;
(3) terms for directors will be staggered in the event the number of directors
is nine or greater; (4) certain merger, consolidation, or other business
combinations (as defined in the Articles of Incorporation) must receive the
affirmative vote of at least 75% of the Continuing Directors (as defined in the
Articles of Incorporation); and (5) special meetings of stockholders may be
called only by the Chairman of the Board, the Chief Executive Officer, the
President or by the Board of Directors.
In addition, the Articles of Incorporation do not provide for cumulative
voting for any purpose. As a result, a majority of stockholders will be able to
elect all members of the Holding Company's Board of Directors and approve all
other matters presented to the stockholders for consideration, except such
matters as require more than a majority vote for approval. The Holding Company's
Articles of Incorporation state that the Board of Directors, without the
approval of the stockholders, may authorize the issuance of shares of preferred
stock with such voting rights, designations, preferences, limitations and
relative rights as the Board of Directors shall determine. As a result, the
Board of Directors has the power, to the extent consistent with its fiduciary
duties, to issue preferred stock to persons friendly to management or otherwise
in order to impede attempts by third parties to acquire voting control of the
Holding Company and to impede other transactions not favored by management. The
amended Certificate of Incorporation and Bylaws of Home upon its conversion to
stock form also contain certain provisions that might discourage potential
takeover attempts of Home. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING
COMPANY AND HOME".
Regulatory Provisions. Regulations of the Administrator contain provisions
that, for a period of three years after the Conversion is consummated, prohibit
any person from directly or indirectly acquiring or offering to acquire
beneficial ownership of more than 10% of any class of equity security of the
Holding Company or Home, with certain exceptions, without the prior approval of
the Administrator. If any person should acquire beneficial ownership of more
than 10% of any class of equity security without prior approval, any shares
beneficially owned in excess of 10% would not be counted as shares entitled to
vote and would not be voted in connection with any matter submitted to the
stockholders for a vote. Regulations provide that the Administrator will give
his approval of such an acquisition during the first year after the Conversion
only to protect the safety and soundness of the Holding Company and Home.
Approval will be given during the second and third years after the Conversion
upon a finding by the Administrator that (i) the acquisition is necessary to
protect the safety and soundness of the Holding Company and Home or the Board of
Directors of the Holding Company supports the acquisition; (ii) the acquiror is
of good character and integrity and possesses satisfactory managerial skills and
after the acquisition, the acquiror will be a source of financial strength to
the Holding Company and Home; and (iii) the interests of the public will not be
adversely affected by the acquisition. Approval is not required for (i) any
offer with a view toward public resale made exclusively to the Holding Company
or its underwriters or the selling group acting on its behalf or (ii) any offer
to acquire or acquisition of beneficial ownership of more than 10% of the common
stock of the Holding Company by a corporation whose ownership is or will be
substantially the same as the ownership of the Holding Company, provided that
the offer or acquisition is made more than one year following the consummation
of the Conversion. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY
AND HOME" .
The Change in Bank Control Act, together with North Carolina regulations,
require that the consent of the Administrator and Federal Reserve be obtained
prior to any person or company acquiring "control" of a savings bank or a
savings 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 Home
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 (i) the issuer's
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securities are registered under Section 12 of the Exchange Act, as the Holding
Company's securities will be, or (ii) 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 "SUPERVISION AND REGULATION --Regulation of the
Holding Company".
Voting Control of Officers and Directors. Directors and executive officers
of Home and the Holding Company and their associates expect to purchase
approximately 1.78% to 2.40% of the shares of Common Stock issued in the
Conversion based upon the maximum and the minimum of the Valuation Range,
respectively. See "ANTICIPATED STOCK PURCHASES BY MANAGEMENT".
In addition, it is expected that 8% of the shares issued in the Conversion
will be acquired by the ESOP. Employees will vote the shares allocated to them
under the ESOP. The ESOP will vote unallocated shares, and allocated shares for
which no voting instructions have been received, in their discretion, subject to
the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
If (i) the Stock Option Plan is approved by the stockholders of the Holding
Company and all of the stock options which could be granted under the Stock
Option Plan are granted and exercised, (ii) the MRP is approved by the
stockholders of the Holding Company and all of the MRP shares which could be
granted are granted and issued, and (iii) the Holding Company did not issue any
additional shares of its Common Stock, the shares held by directors and
executive officers and their associates as a group, including (a) shares
purchased outright in the Conversion, (b) shares purchased by the ESOP, (c)
shares purchased pursuant to the Stock Option Plan and (d) shares granted under
the MRP, would give such persons effective control over as much as 19.50% or
18.88%, at the minimum and maximum of the Valuation Range, respectively, of the
Common Stock issued and outstanding. Because the Holding Company's Articles of
Incorporation requires the affirmative vote of 75% of the outstanding shares
entitled to vote in order to approve certain mergers, consolidations or other
business combinations, the officers and directors, as a group, could effectively
block such transactions. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING
COMPANY AND HOME -- The Holding Company -- Supermajority Voting Provisions".
Agreements With Employees. In connection with the Conversion, Home will
enter into employment agreements with its president and executive vice
president. See "MANAGEMENT OF HOME -- Employment Agreements". In addition, Home
intends to adopt a Severance Plan which would benefit its employees in the event
there was a change in control of the Holding Company or Home. See "MANAGEMENT OF
HOME -- Severance Plan". The existence of the employment agreements and the
severance plan may tend to discourage mergers, consolidations, acquisitions or
other transactions that would result in a change in control of the Holding
Company or Home.
No Opinion or Recommendation by Sales Agent
Home has engaged Trident Securities to consult with and advise Home with
respect to the Conversion and to assist, on a best-efforts basis, in connection
with the solicitation of subscriptions and purchase orders for shares of Common
Stock in the Offerings. Trident Securities has not prepared or delivered any
opinion or recommendation with respect to the suitability of the Common Stock or
the appropriateness of the amount of Common Stock to be issued in the
Conversion. The engagement of Trident Securities by Home and the work performed
pursuant to such engagement, including any due diligence investigation, should
not be construed by purchasers of the Common Stock as constituting an opinion or
recommendation relating to such investment and should not be construed as a
verification of the accuracy or completeness of the information contained in
this Prospectus.
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Independent Appraisal
The North Carolina regulations governing conversions of North Carolina-
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 Valuation Range which is established by an independent
appraiser; provided, however, that with the consent of the Administrator and the
FDIC the aggregate purchase price of the Common Stock sold may be increased to
up to 15% above the maximum of the 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.
Home has retained Ferguson, an independent appraisal firm experienced in
the valuation and appraisal of savings institutions and their holding companies,
to prepare an appraisal of the aggregate pro forma market value of Home and the
Holding Company and to assist Home in preparing a business plan. Home has agreed
to indemnify Ferguson and its employees against certain losses (including any
losses in connection with claims under the federal securities laws) arising out
of its services.
The Board of Directors of Home has reviewed the methodology and assumptions
used by Ferguson in preparing the appraisal and has determined that the
Valuation Range, as well as the methodology and assumptions used, were
reasonable and appropriate.
Upon completion of the Subscription and Community Offerings, Ferguson will
confirm or update its valuation of the estimated aggregate pro forma market
value of Home and the Holding Company. Based on the confirmed or updated
appraisal, a determination will be made by the Board of Directors of the total
number of shares of Common Stock which shall be offered and sold in the
Conversion.
No sale of shares of Common Stock may be consummated unless, after the
expiration of the offering period, Ferguson confirms to Home and the Holding
Company that, to the best of its knowledge, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause Ferguson
to conclude that the aggregate purchase price of the Common Stock sold in the
Conversion is incompatible with its estimate of the aggregate pro forma market
value of Home and the Holding Company at the conclusion of the Subscription and
Community Offerings and the Syndicated Community Offering, if any.
The valuation by Ferguson is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing Common Stock.
Ferguson did not independently verify the financial statements and other
information provided by Home, nor did Ferguson value independently the assets or
liabilities of Home. The valuation considers Home as a going concern and should
not be considered as an indication of the liquidation value of Home or the
Holding Company. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons purchasing such
shares in the Conversion will thereafter be able to sell shares at prices in the
range of the foregoing valuation of the pro forma market value thereof. See "THE
CONVERSION -- Purchase Price of Common Stock and Number of Shares Offered".
SOUTH STREET FINANCIAL CORP.
The Holding Company was incorporated under North Carolina law in 1996, at
the direction of the Board of Directors of Home for the purpose of acquiring and
holding all of the outstanding capital stock of Home to be issued in connection
with the Conversion. The Holding Company has received conditional approval from
the Federal Reserve and the Administrator to become a bank holding company and
as such will be subject to regulation by the Federal Reserve
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and the Administrator. The holding company structure will give the Holding
Company greater flexibility than Home currently has to expand and diversify its
business activities, although there are no existing plans regarding expansion or
diversification. See "SUPERVISION AND REGULATION -- Regulation of the Holding
Company".
Prior to completion of the Conversion, the Holding Company will not own any
material assets or transact any material business. Upon completion of the
Conversion, on an unconsolidated basis, the Holding Company will have no
significant assets other than the stock of Home acquired in the Conversion, the
loan receivable with respect to the loan made to the ESOP to enable the ESOP to
purchase shares of Common Stock in the Conversion and the portion of the net
proceeds from the sale of Common Stock in the Conversion retained by it. The
Holding Company will have no significant liabilities upon completion of the
Conversion. The management of the Holding Company is set forth under "MANAGEMENT
OF THE HOLDING COMPANY".
The executive office of the Holding Company is located at the principal
office of Home at 155 West South Street, Albemarle, North Carolina 28001.
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
Home was originally chartered in 1911 as a North Carolina-chartered
building and loan association under the name Home Builders Association. Home
converted to a North Carolina-chartered state savings bank in 1992. Home has
been a member of the FHLB system since 1954, and its deposits have been
federally insured since 1954. The deposits of Home are insured by the SAIF of
the FDIC to the maximum amount permitted by law.
Home is a member of the FHLB of Atlanta, which is one of the 12 regional
banks for federally insured savings institutions and other eligible members
comprising the FHLB system. Home is further subject to certain regulations of
the FDIC with respect to certain other matters and, as a subsidiary of the
Holding Company, will be indirectly subject to regulation by the Federal
Reserve. See "SUPERVISION AND REGULATION -- Regulation of the Holding Company"
and "-- Regulation of Home".
Home conducts business through its principal office in Albemarle, North
Carolina and its full-service branch office in Locust, North Carolina. Home's
primary market area is Stanly County, North Carolina. On March 31, 1996, Home
had total assets of $167.0 million, net loans of $106.7 million, deposits of
$144.3 million and equity of $20.7 million which is 12.39% of total assets.
Home is a community-oriented financial institution which offers a variety
of financial services to meet the needs of the community it serves. Home is
principally engaged in the business of attracting retail deposits from the
general public and using such deposits to make one-to-four family residential
real estate loans, loans secured by nonresidential real estate, home equity line
of credit loans and other loans and investments. On March 31, 1996, all of the
loans in Home's loan portfolio which were secured by real estate were secured by
properties located in North Carolina. Revenues of Home are derived primarily
from interest on loans. Home also receives interest income from its investments,
mortgage-backed securities and interest-bearing deposit balances. The major
expenses of Home are interest on deposits and noninterest expenses such as
salaries, employee benefits, federal deposit insurance premiums and occupancy
and related expenses.
The existing management of Home now believes that it will be in the best
interests of Home and its stockholders for Home to remain an independent
financial institution.
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USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that such net proceeds will be between $27,836,000 and $37,840,000, based on the
current Valuation Range. If the gross proceeds of the shares sold are increased
to 15% above the maximum of the Valuation Range, it is anticipated that net
proceeds will equal $43,593,000. See "PRO FORMA DATA" for the assumptions used
to arrive at these amounts. The actual net proceeds may vary materially from the
estimated amounts described herein. The estimated amount of net proceeds
includes proceeds from the sale of the shares which are expected to be purchased
by the ESOP in the Subscription Offering with funds borrowed from the Holding
Company. The amount loaned to the ESOP to enable such purchases is estimated to
range from $2,312,000 (if 2,890,000 shares are issued) to $3,128,000 (if
3,910,000 shares are issued). See "MANAGEMENT OF HOME -- Employee Stock
Ownership Plan".
After first deducting the amount of the net proceeds used by the Holding
Company to make the loan to the ESOP (estimated to range from $2,312,000 to
$3,128,000), it is expected that the Holding Company will retain approximately
50% of the remaining net proceeds of the Offerings and will pay the balance of
the net proceeds to Home in exchange for all of the common stock of Home to be
issued in connection with the Conversion. The Holding Company expects to use the
portion of the net proceeds it retains for working capital and investment
purposes. The Holding Company does not expect to have significant operating
expenses and anticipates that it will initially invest the net proceeds it
retains primarily in interest-bearing deposits, U.S. government and federal
agency securities with terms of up to five years. The types and amounts of such
investments will vary from time to time based upon the interest rate
environment, asset/liability mix considerations and other factors. The net
proceeds retained by the Holding Company also may be used to support the future
expansion of operations of the Holding Company through acquisitions of other
financial institutions. The Holding Company has no pending agreements or
understandings regarding any such acquisitions, and there are no pending
negotiations regarding any such acquisitions. No such acquisitions are planned
at this time.
Upon completion of the Conversion, the Board of Directors will have the
authority to adopt stock repurchase plans, subject to statutory and regulatory
requirements. Based upon facts and circumstances which may arise following the
Conversion, the Board of Directors may determine to repurchase stock in the
future. Such facts and circumstances may include but are not limited to
(i) market and economic factors such as the price at which the Common Stock is
trading, the volume of trading, the attractiveness of other investment
alternatives in terms of the rates of return and risks involved in the
investments, the ability to increase the book value and earnings per share of
the remaining outstanding shares, and an improvement in the Holding Company's
return on equity; (ii) the reduction of dilution to stockholders caused by
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 the determination of the Board of
Directors that both the Holding Company and Home will be capitalized in excess
of applicable regulatory requirements after any such repurchases and that
capital will be adequate taking into account, among other things, the level of
nonperforming assets and other risks, the Holding Company's and Home's current
and projected results of operations and asset/liability structure, the economic
environment and tax and other regulatory considerations. No stock repurchases
may be made within one year after the Conversion without the approval of the
Administrator. Federal regulations require that the Holding Company must notify
the Federal Reserve prior to repurchasing Common Stock for in excess of 10% of
its net worth during any rolling 12 month period. The Holding Company does not
intend to repurchase any Common Stock during the first year following the
Conversion.
The portion of the net proceeds paid to Home in the Conversion will have
the immediate effect of providing Home with substantial new capital which will
significantly increase its net worth and regulatory capital. See "PRO FORMA
DATA" and "SUPERVISION AND REGULATION -- Regulation of Home --Capital
Requirements Applicable
25
<PAGE>
to Home". The net proceeds paid to Home will become part of Home's general funds
and will be invested primarily in mortgage, consumer and other loans and
investments consisting primarily of U.S. government and federal agency
obligations in accordance with Home's lending and investment policies. The
relative amounts to be invested in each of these types of investments will
depend upon loan demand, rates of return and asset/liability matching
considerations at the time the investments are to be made. Management is not
able to predict the yields which will be produced by the investment of the
proceeds of the Offerings because such yields will be significantly influenced
by general economic conditions and the interest rate environment existing at the
time the investments are made. Remaining net proceeds paid to Home will be used
for general corporate purposes, including, possibly opening another branch
office, although Home has no existing plans to open any additional office in the
immediate future. If the MRP is approved by the stockholders of the Holding
Company, as soon as practicable thereafter, the MRP will acquire a number of
shares of Common Stock equal to 4% of the number of shares issued in the
Conversion. See "MANAGEMENT OF HOME --Proposed Management Recognition Plan".
Such shares may be acquired in the open market or acquired through the Holding
Company's issuance of authorized but unissued shares. In the event shares are
acquired in the open market, the funds for such purchase will be provided by
Home from the proceeds of the Conversion and its other capital. It is estimated
that between 115,600 and 156,400 shares will be acquired by the MRP, assuming
the issuance of between 2,890,000 and 3,910,000 shares, respectively, in the
Conversion. If all such shares were acquired by the MRP in the open market, and
if such shares were acquired at a price of $10.00 per share, Home would
contribute between $1,156,000 and $1,564,000, respectively, to the MRP for this
purpose.
The proceeds of the Offerings will result in an increase in Home's net
worth and regulatory capital and may enhance the potential for growth through
increased lending and investment activities, branch acquisitions, business
combinations or otherwise. Payments for shares of Common Stock of the Holding
Company made through the withdrawal of existing deposit accounts at Home will
not result in the receipt of new funds for investment by Home.
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Holding Company will have
the authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. The Board of Directors of the Holding Company intends
to establish a dividend policy following the Conversion to pay a regular
quarterly dividend at a rate to be determined. Declarations of dividends, if
any, by the Board of Directors will depend upon a number of factors, including
investment opportunities available to the Holding Company and Home, capital
requirements, regulatory limitations, the Holding Company's and Home's results
of operations and financial condition, tax considerations and general economic
conditions. Upon review of such considerations, the Board of Directors of the
Holding Company may authorize dividends to be paid in the future if it deems
such payment appropriate and in compliance with applicable law and regulation.
No assurances can be given that any dividends will in fact be paid on the Common
Stock or, if dividends are paid, that they will not be reduced or discontinued
in the future. In addition, the Board of Directors may determine from time to
time that it is prudent to pay special cash dividends. Special cash dividends,
if paid, may be in addition to, or in lieu of, regular cash dividends. The Board
will determine whether to pay special cash dividends based upon its review of
the Holding Company's current and anticipated needs for capital and its current
and anticipated levels of capital and earnings. Special dividends will not be
paid during periods when the Board determines that the Holding Company needs
funds or that it can deploy funds at desirable levels of profitability. On the
other hand, the Board of Directors may decide to pay special dividends at times
when the Board determines that payment of such dividends uses such funds to
greater advantage than deploying them in the Holding Company's operations. Like
regular cash dividends, there can be no assurance that special dividends will be
paid, or, if paid, will continue to be paid. The Holding Company and Home have
agreed with the FDIC that any cash dividends paid to stockholders during the
twelve-month period following the closing of the Conversion will be paid out of
accumulated earnings and profits (as computed for federal income tax purposes)
and will not constitute or be treated for tax purposes as returns of capital to
stockholders.
26
<PAGE>
The sources of income to the Holding Company initially will consist of
income from investments and dividends paid by Home to the Holding Company, if
any. Consequently, future declarations of cash dividends by the Holding Company
may depend upon dividend payments by Home to the Holding Company, which payments
are subject to various restrictions. Under current North Carolina regulations,
Home could not declare or pay a cash dividend if the effect thereof would be to
reduce its net worth to an amount which is less than the minimum required by the
FDIC and the Administrator. In addition, for a period of five years after the
consummation of the Conversion, Home will be required, under existing
regulations, to obtain the prior written approval of the Administrator before it
can declare and pay a cash dividend on its capital stock in an amount in excess
of one-half of the greater of (i) its net income for the most recent fiscal
year, or (ii) the average of its net income after dividends for the most recent
fiscal year and not more than two of the immediately preceding fiscal years, if
applicable. See "SUPERVISION AND REGULATION -- Regulation of Home --
Restrictions on Dividends and Other Capital Distributions". As a result of this
limitation, if Home had been a stock institution at the end of fiscal 1995, it
could not have paid a dividend to the Holding Company, its sole stockholder, in
excess of approximately $1.2 million without the approval of the Administrator.
As a converted institution, Home 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. See "THE CONVERSION --
Effects of Conversion -- Liquidation Rights" and "-- Liquidation Rights After
the Conversion". Also, see "TAXATION -- Federal Income Taxation" for a
discussion of federal income tax provisions that may limit the ability of Home
to pay dividends to the Holding Company without incurring a recapture tax.
MARKET FOR COMMON STOCK
The Holding Company, as a newly organized company, has never issued capital
stock, and consequently, there is no established market for the Common Stock at
this time. The Holding Company has received conditional approval to have the
Common Stock listed on Nasdaq under the symbol "_______" upon consummation of
the Conversion. In addition, Trident will act as a market maker for the Common
Stock. There can be no assurance that the Common Stock will in fact be listed on
Nasdaq or that it will trade on Nasdaq. An active and liquid public trading
market for the securities of any issuer, including the Common Stock, depends
upon the presence in the marketplace of both willing buyers and willing sellers
of the securities at any given time. Although the Holding Company has received
preliminary approval to have its shares quoted on Nasdaq, subject to certain
conditions which the Holding Company believes will be met, there can be no
assurance that an active trading market will develop and be maintained. Further,
even if a market develops, there can be no assurance that the shares of Common
Stock offered in the Conversion can be resold at or above the purchase price
after completion of the Conversion. Purchasers of Common Stock should consider
the potentially illiquid and long-term nature of their investment in the shares
being offered hereby. The aggregate price of the Common Stock is based upon an
independent appraisal of the aggregate pro forma market value of the Common
Stock. However, there can be no assurance that an investor will be able to sell
the Common Stock purchased in the Conversion at or above the purchase price.
CAPITALIZATION
The following table presents the historical capitalization of Home at March
31, 1996 and the pro forma capitalization of the Holding Company after giving
effect to the sale of the Common Stock and application of the assumptions set
forth under "PRO FORMA DATA", assuming that 2,890,000, 3,400,000, 3,910,000 and
4,496,500 shares of Common stock are sold at $10.00 per share (the minimum,
midpoint, maximum and 15% above the maximum of the current Valuation Range). A
change in the number of shares issued in the Conversion may materially affect
such pro forma capitalization. See "USE OF PROCEEDS" and "THE CONVERSION --
Purchase Price of Common Stock and Number of Shares Offered".
27
<PAGE>
<TABLE>
<CAPTION>
The Holding Company Pro Forma Capitalization Based Upon
Home Savings Sale at $10.00 Per Share At March 31, 1996
Bank of -------------------------------------------------------
Albemarle, SSB 2,890,000 3,400,000 3,910,000 4,496,500
Historical Shares Shares Shares Shares
-----------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits (1) $ 144,282 $ 144,282 $ 144,282 $ 144,282 $ 144,282
=======================================================================
Stockholders' Equity:
Preferred stock - - - - -
Authorized shares: 5,000,000
No shares outstanding
Common stock, no par value - - - - -
Authorized shares: 20,000,000
assumed outstanding shares
are shown (2)
Additional paid-in capital - 27,836 32,838 37,840 43,593
Less common stock acquired:
ESOP (3) - (2,312) (2,720) (3,128) (3,597)
MRP (4) - (1,156) (1,360) (1,564) (1,799)
Retained earnings (5) 20,691 20,691 20,691 20,691 20,691
Unrealized gain on available for
sale securities 29 29 29 29 29
-----------------------------------------------------------------------
Total stockholders' equity $ 20,720 $ 45,088 $ 49,478 $ 53,868 $ 58,917
=======================================================================
Total deposits and stockholders' equity $ 165,002 $ 189,370 $ 193,760 $ 198,150 $ 203,199
=======================================================================
</TABLE>
(1) Withdrawals from deposit accounts for the purchase of Common Stock are not
reflected. Any such withdrawals would reduce proforma deposits by the
amount of such withdrawals.
(2) Does not reflect the issuance of any shares of Common Stock reserved for
issuance pursuant to the Holding Company's proposed stock option plans
which require stockholder approval. See "MANAGEMENT OF HOME - Stock Option
Plans."
(3) Assumes that 8% of the shares of Common Stock offered hereby will be
purchased by the ESOP in the Conversion at $10 per share. The funds used by
the ESOP to acquire the shares will be borrowed from the Holding Company
for a ten year term. For an estimate of the impact of the ESOP loan on
earnings, see "PRO FORMA DATA." Home intends to make contributions to the
ESOP sufficient to service and ultimately retire the debt. The amount of
the ESOP debt is reflected as a reduction of stockholders' equity.
(4) Assumes that an amount of shares equal to 4% of the shares issued in the
conversion will be purchased by the MRP at $10 per share. The MRP intends
to purchase 4% of the Common Stock sold in the conversion, assuming
stockholder approval has been obtained at the Holding Company's first
annual meeting of stockholders following the Conversion. No shares will be
purchased by the MRP in the conversion, and assuming stockholder approval
and regulatory approval, such purchase of shares may be acquired from the
Holding Company's authorized but unissued shares or acquired in open market
purchases. The MRP's purchase of shares cannot occur until six months after
the consummation of the conversion, and such shares will be purchased at
the then current market price. The purchase by the MRP of an amount equal
to 4% of the shares issued in the conversion has been included on a
proforma basis to give an indication of the effect on capitalization of
such 4% purchase by the MRP. The Common Stock to be acquired by the MRP is
reflected as a reduction of stockholders' equity. The number of shares
assumed to be issued at the minimum, midpoint, maximum, and 15% above the
maximum of the valuation range as adjusted are 115,600, 136,000, 156,400
and 179,900, respectively. The dilutive effect to existing shareholders
would be approximately 3.8% if the MRP were to acquire such shares from
authorized but unissued shares.
(5) The retained earnings of Home will be substantially restricted after the
Conversion.
28
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $27,836,000 and $37,840,000, (including net
proceeds from shares expected to be purchased by the ESOP with funds borrowed
from the Holding Company), based upon the following assumptions: (i) 10.40%,
10.04%, 9.78% and 9.55% of the Common Stock sold in the Conversion at the
minimum, midpoint, maximum and 15% above the maximum, respectively, of the
Valuation Range will be sold to the ESOP, directors and executive officers and
their associates as defined in the Plan of Conversion, and none of the shares of
Common Stock will be sold in any Syndicated Community Offering pursuant to
selected dealer agreements; (ii) fees will be payable to Trident Securities with
respect to the Subscription and Community Offerings as described in "THE
CONVERSION -- Marketing Arrangements;" and (iii) Conversion expenses, excluding
the fees and commissions to Trident Securities, will be approximately $526,000.
Actual net proceeds may vary depending upon the number of shares sold to the
ESOP and to directors, executive officers and their associates, the number of
shares, if any, sold in the Syndicated Community Offering pursuant to selected
dealer arrangements and the actual expenses of the Conversion. Payments for
shares made through withdrawals from existing Home deposit accounts will not
result in the receipt of new funds for investment by Home. However, capital will
increase and interest-bearing liabilities will decrease by the amount of such
withdrawals. See "THE CONVERSION -- Purchase Price of Common Stock and Number of
Shares Offered".
Under the Plan of Conversion, the Common Stock must be sold at an aggregate
price equal to not less than the minimum nor more than the maximum of the
Valuation Range based upon an independent appraisal. The Valuation Range as of
April 30, 1996 is from a minimum of $28,900,000 to a maximum of $39,100,000 with
a midpoint of $34,000,000. However, with the consent of the Administrator and
the FDIC, the aggregate price of the Common Stock sold may be increased to up to
15% above the maximum of the Valuation Range, or to $44,965,000, without a
resolicitation and without any right to cancel, rescind or change subscription
orders, to reflect changes in market and financial conditions following
commencement of the Subscription Offering. See "THE CONVERSION -- Purchase Price
of Common Stock and Number of Shares Offered".
Pro forma consolidated net earnings and book value of the Holding Company
at or for the year ended September 30, 1995 and the six months ended March 31,
1996 have been based upon the following assumptions: (i) the sale of shares of
Common Stock in connection with the Conversion occurred at the beginning of the
periods and yielded estimated net Conversion proceeds of $27,836,000,
$32,838,000, $37,840,000 and $43,593,000 (based upon the issuance of 2,890,000,
3,400,000, 3,910,000 and 4,496,500 shares, respectively, at $10.00 per share) on
such date; and (ii) such net proceeds were invested on a consolidated basis at
the beginning of the periods at a yield of 5.40%, which represents the one-year
treasury bill rate at March 31, 1996. The Holding Company did not use the
arithmetic average of Home's weighted-average yield on interest-earning assets
and weighted-average interest rate paid on deposits during the year ended
September 30, 1995. Management believes that the one-year treasury bill rate is
a more appropriate rate for purposes of preparing the pro forma data because
proceeds from the Conversion are expected to be initially invested in
instruments with similar yields and maturities. The effect of withdrawals from
deposit accounts for the purchase of Common Stock has not been reflected. Such
withdrawals have no effect on pro forma stockholders' equity, and management
does not believe that such withdrawals will have a material impact on pro forma
net earnings or pro forma net earnings per share. In calculating pro forma net
earnings, an effective tax rate of 37% has been assumed, resulting in a yield
after taxes of 3.40%. Historical and pro forma per share amounts have been
calculated by dividing Home's historical amounts and the Holding Company's pro
forma amounts by the indicated number of shares of Common Stock, assuming that
such number of shares had been outstanding during the entire period.
The following pro forma information is not intended to represent the market
value of the Common Stock, the value of net assets and liabilities or of future
results of operations. The assumption regarding investment yields should not be
considered indicative of actual yields for future periods. The following
information is not intended to be used as a basis for projection of results of
operations for future periods.
29
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September, 30 1995
------------------------------------------------------------------------
2,890,000 3,400,000 3,910,000 4,496,500
shares shares shares shares
at $10.00 at $10.00 at $10.00 at $10.00
per share per share per share per share
(Minimum) (Midpoint) (Maximum) (Supermax)
------------------------------------------------------------------------
(In Thousands, except per share amount)
<S> <C> <C> <C> <C>
Gross proceeds $ 28,900 $ 34,000 $ 39,100 $ 44,965
Less offering expenses and commissions (1,064) (1,162) (1,260) (1,372)
------------------------------------------------------------------------
Estimated net Conversion proceeds 27,836 32,838 37,840 43,593
Less Common stock acquired by ESOP (2,312) (2,720) (3,128) (3,597)
Less Common Stock acquired by MRP (1,156) (1,360) (1,564) (1,799)
------------------------------------------------------------------------
Estimated proceeds available for investment $ 24,368 $ 28,758 $ 33,148 $ 38,197
========================================================================
Pro forma net earnings:
Historical earnings $ 1,861 $ 1,861 $ 1,861 $ 1,861
Pro Forma adjustments:
Net after tax earnings on conversion
proceeds (1) 829 978 1,128 1,299
Pro forma ESOP expense (2) (146) (171) (197) (227)
Pro forma MRP expense (3) (146) (171) (197) (227)
------------------------------------------------------------------------
Pro forma net earnings $ 2,398 $ 2,497 $ 2,595 $ 2,706
========================================================================
Pro forma net earnings per share:
Historical earnings $ 0.69 $ 0.59 $ 0.51 $ 0.45
Pro Forma adjustments:
Net after tax earnings on net conversion
proceeds 0.31 0.31 0.31 0.31
Pro forma ESOP expense (2) (0.05) (0.05) (0.05) (0.05)
Pro forma MRP expense (3) (0.05) (0.05) (0.05) (0.05)
------------------------------------------------------------------------
Pro forma net earnings per share $ 0.90 $ 0.80 $ 0.72 $ 0.66
========================================================================
Pro forma, without implementation of SOP 93-6 $ 0.83 $ 0.73 $ 0.66 $ 0.60
========================================================================
Offering price to pro forma earning per share
(P/E ratio) (5) 11.18 x 12.64 x 13.98 x 15.41
============= ================ =============== ===============
Pro forma stockholders' equity (net book value): (4)
Historical capital $ 20,426 $ 20,426 $ 20,426 $ 20,426
Estimated net conversion proceeds 27,836 32,838 37,840 43,593
Less common stock acquired by:
ESOP (2) (2,312) (2,720) (3,128) (3,597)
MRP (3) (1,156) (1,360) (1,564) (1,799)
------------------------------------------------------------------------
Pro forma stockholders' equity (4) $ 44,794 $ 49,184 $ 53,574 $ 58,623
========================================================================
Pro forma stockholders' equity per share: (4)
Historical capital $ 7.07 $ 6.01 $ 5.22 $ 4.54
Estimated net conversion proceeds 9.63 9.66 9.68 9.69
Less common stock acquired by:
ESOP (2) (0.80) (0.80) (0.80) (0.80)
MRP (3) (0.40) (0.40) (0.40) (0.40)
------------------------------------------------------------------------
Pro forma stockholders' equity per share (4) $ 15.50 $ 14.47 $ 13.70 $ 13.03
========================================================================
Offering price as percentage of pro forma
stockholders' equity per share 64.52% 69.13% 72.98% 76.70%
========================================================================
Number of shares used to calculate earnings
per share (5) 2,681,920 3,155,200 3,628,480 4,172,752
========================================================================
Number of shares used to calculate stockholders'
equity per share (4) 2,890,000 3,400,000 3,910,000 4,496,500
========================================================================
</TABLE>
<TABLE>
<CAPTION>
At or For the Six Months Ended March 31, 1996
----------------------------------------------------------------
2,890,000 3,400,000 3,910,000 4,496,500
shares shares shares shares
at $10.00 at $10.00 at $10.00 at $10.00
per share per share per share per share
(Minimum) (Midpoint) (Maximum) (Supermax)
----------------------------------------------------------------
(In Thousands, except per share amount)
<S> <C> <C> <C> <C>
Gross proceeds $ 28,900 $ 34,000 $ 39,100 $ 44,965
Less offering expenses and commissions (1,064) (1,162) (1,260) (1,372)
----------------------------------------------------------------
Estimated net Conversion proceeds 27,836 32,838 37,840 43,593
Less Common stock acquired by ESOP (2,312) (2,720) (3,128) (3,597)
Less Common Stock acquired by MRP (1,156) (1,360) (1,564) (1,799)
----------------------------------------------------------------
Estimated proceeds available for investment $ 24,368 $ 28,758 $ 33,148 $ 38,197
================================================================
Pro forma net earnings:
Historical earnings $ 299 $ 299 $ 299 $ 299
Pro Forma adjustments:
Net after tax earnings on conversion
proceeds (1) 414 489 564 650
Pro forma ESOP expense (2) (73) (86) (99) (113)
Pro forma MRP expense (3) (73) (86) (99) (113)
----------------------------------------------------------------
Pro forma net earnings $ 567 $ 616 $ 665 $ 723
================================================================
Pro forma net earnings per share:
Historical earnings $ 0.11 $ 0.09 $ 0.08 $ 0.07
Pro Forma adjustments:
Net after tax earnings on net conversion
proceeds 0.16 0.16 0.16 0.16
Pro forma ESOP expense (2) (0.03) (0.03) (0.03) (0.03)
Pro forma MRP expense (3) (0.03) (0.03) (0.03) (0.03)
----------------------------------------------------------------
Pro forma net earnings per share $ 0.21 $ 0.19 $ 0.18 $ 0.17
================================================================
Pro forma, without implementation of SOP 93-6 $ 0.20 $ 0.18 $ 0.17 $ 0.16
================================================================
Offering price to pro forma earning per share
(P/E ratio) (5) 23.61 x 25.58 x 27.25 x 28.89
========== ========== ========= =========
Pro forma stockholders' equity (net book value): (4)
Historical capital $ 20,720 $ 20,720 $ 20,720 $ 20,720
Estimated net conversion proceeds 27,836 32,838 37,840 43,593
Less common stock acquired by:
ESOP (2) (2,312) (2,720) (3,128) (3,597)
MRP (3) (1,156) (1,360) (1,564) (1,799)
----------------------------------------------------------------
Pro forma stockholders' equity (4) $ 45,088 $ 49,478 $ 53,868 $ 58,917
================================================================
Pro forma stockholders' equity per share: (4)
Historical capital $ 7.17 $ 6.09 $ 5.30 $ 4.61
Estimated net conversion proceeds 9.63 9.66 9.68 9.69
Less common stock acquired by:
ESOP (2) (0.80) (0.80) (0.80) (0.80)
MRP (3) (0.40) (0.40) (0.40) (0.40)
----------------------------------------------------------------
Pro forma stockholders' equity per share (4) $ 15.60 $ 14.55 $ 13.78 $ 13.10
================================================================
Offering price as percentage of pro forma
stockholders' equity per share 64.10% 68.72% 72.58% 76.32%
================================================================
Number of shares used to calculate earnings
per share (5) 2,681,920 3,155,200 3,628,480 4,172,752
================================================================
Number of shares used to calculate stockholders'
equity per share (4) 2,890,000 3,400,000 3,910,000 4,496,500
================================================================
</TABLE>
30
<PAGE>
(1) Subject to approval by the Holding Company's stockholders at a meeting
to be held no sooner than six months after the Conversion, 10% of the shares
issued in the Conversion would be reserved for issuance to directors,
officers, and employees under the Stock Option Plan. Because management
cannot reasonably estimate the number of options which might be exercised or
the option exercise price, no provision for the Stock Option Plan has been
made in the preceding pro forma calculations. At 15% above the maximum of
the Valuation Range, assuming 4,496,500 shares of the Common Stock are
issued in the Conversion, it is expected that options to acquire 449,650
shares of the Common Stock could be granted under the Stock Option Plan. If
all shares under the Stock Option Plan were newly issued, the exercise price
was $10.00 for the shares issued pursuant to the options, and all of the
options were exercised, the number of outstanding shares of Common Stock
would increase from 4,496,500 to 4,946,150 and the pro forma earnings per
share of the outstanding Common Stock (based on shares released for the
period pursuant to SOP 93-6) would have been $0.16 compared with $0.17 and
$0.60 compared with $0.66 for the six-month period ended March 31, 1996 and
the year ended September 30, 1995, respectively, if the Stock Option Plan
did not exist. See "MANAGEMENT OF HOME -- Proposed Stock Option Plan".
(2) It is assumed that 8% of the shares of Common Stock in the Conversion
will be purchased by the ESOP. For purposes of this table, the funds used
to acquire such shares are assumed to have been loaned to the ESOP by the
Holding Company. The amount loaned is reflected as a reduction of
stockholders' equity. Home intends to make annual contributions to the ESOP
over a ten-year period in an amount at least equal to the principal and
interest requirements of the loan. Home's total annual payment of the ESOP
loan is based upon 10 equal annual installments of principal. The pro forma
net earnings assumes: (i) that Home's contribution to the ESOP for the
principal portion of the debt service requirement for the six months ended
March 31, 1996 and for the year ended September 30, 1995 was made at the end
of the period; (ii) that 23,120, 27,200, 31,280 and 35,970 shares at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, were committed to be released during the six months ended
March 31, 1996 and the year ended September 30, 1995, respectively, at an
average fair value of $10.00 per share and were accounted for as a charge to
expense in accordance with Statement of Position ("SOP") No. 93-6, net of
income tax at an assumed rate of 37%; and (iii) only the ESOP shares
committed to be released were considered outstanding for purposes of the net
earnings per share calculations, while all ESOP shares were considered
outstanding for purposes of the stockholders' equity per share calculations.
See "MANAGEMENT OF HOME -- Employee Stock Ownership Plan".
(3) It is assumed that the MRP will purchase a number of shares equal to 4%
of the shares of Common Stock issued in the Conversion for issuance to
directors, officers and employees, subject to approval by the Holding
Company's stockholders at a meeting to be held no sooner than six months
after Conversion. If the MRP is approved by the stockholders, the MRP
intends to acquire the Common Stock either through open market purchases, if
permissible, or from authorized but unissued shares of Common Stock of the
Holding Company. Funds used by the MRP to purchase the shares will be
contributed to the MRP by Home. In calculating the pro forma effect of the
MRP, it is assumed that the required stockholder approval has been received,
that the shares were acquired by the MRP at the beginning of the period
presented in open market purchases at the Conversion purchase price of
$10.00 per share, and that 20% of the amount contributed was amortized to
expense annually during the period (the MRP will be amortized over a five-
year period), net of income tax at an assumed rate of 37%. The issuance of
authorized but unissued shares of the Holding Company's Common Stock to the
MRP instead of open market purchases would dilute the voting interests of
existing stockholders by approximately 3.8%; pro forma net earnings per
share would be $0.21, $0.19, $0.18 and $0.17 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively, for the six-
month period ended March 31, 1996; and pro forma stockholders' equity per
share would be $15.39, $14.38, $13.63 and $12.98 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively, at March 31,
1996. Pro forma net earnings per share would be $0.87, $0.77, $0.70 and
$0.64 at the minimum, midpoint, maximum and
31
<PAGE>
15% above the maximum of the range, respectively, for the year ended
September 30, 1995; and pro forma stockholders' equity per share would be
$15.29, $14.29, $13.56 and $12.92 at the minimum, midpoint, maximum and 15%
above the maximum of the range, respectively at September 30, 1995. There
can be no assurance that stockholder approval of the MRP will be obtained,
or that the actual purchase price of the shares will be equal to the
Conversion purchase price. See "MANAGEMENT OF HOME -- Proposed Management
Recognition Plan".
(4) The retained earnings of Home will be substantially restricted after the
Conversion. See "DIVIDEND POLICY" and "SUPERVISION AND REGULATION --
Regulation of Home -- Restrictions on Dividends and Other Capital
Distributions". Pursuant to SOP 93-6, stockholders' equity per share is
calculated based on all ESOP shares issuable.
(5) Pro forma earnings per share is calculated based on the number of shares
outstanding indicated in the previous tables which include shares to be
acquired by the ESOP and the MRP. Pursuant to SOP 93-6, pro forma earnings
per share is calculated using only the ESOP shares released for the period
according to scheduled contributions included as share outstanding. In
order to show the effect of SOP 93-6, earnings per share is also calculated
as if all ESOP shares were outstanding.
32
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
Home is subject to the North Carolina savings bank requirement that net
worth, computed in accordance with the requirements of the Administrator, equal
or exceed 5% of total assets. As of March 31, 1996, Home's net worth, computed
in accordance with such requirements, was 12.65% of total assets. In addition,
Home is subject to the capital requirements of the FDIC. The FDIC requires that
institutions which receive the highest rating during their examination process
and are not experiencing or anticipating significant growth must maintain a
leverage ratio of Tier I capital to "total assets" (as defined in FDIC
regulations) of at least 3%. All other institutions are required to maintain a
ratio of 1% or 2% above the 3% minimum with an absolute minimum leverage ratio
of not less than 4%. The FDIC also imposes requirements that (i) the ratio of
Tier I capital to risk-weighted assets equal at least 4% and (ii) the ratio of
total capital to risk-weighted assets equal at least 8%. At March 31, 1996, Home
had Tier I capital of approximately $20.7 million, or 12.39% of total assets. As
demonstrated in the table below, Home exceeds the FDIC Tier I and risk-based
capital requirements and North Carolina capital requirements on a historical and
pro forma basis.
Set forth below is a summary of Home's compliance with regulatory capital
standards at March 31, 1996, on a historical and pro forma basis assuming that
the indicated number of shares are sold as of such date and Home received 50% of
the net proceeds of the Offerings after deducting the amount of the ESOP debt.
In addition, the cost of the shares expected to be acquired by the MRP are
deducted from pro forma capital.
33
<PAGE>
<TABLE>
<CAPTION>
Home's Historical Regulatory ProForma Regulatory Capital Position at March 31, 1996
----------------------------------------------------------------------------
Capital Position at 2,890,000 Shares sold at 3,400,000 Shares sold at
March 31, 1996 Price of $10 per share Price of $10 per share
--------------------------------------------------------------------------------------------------------
Percent of Percent of Percent of
Adjusted Adjusted Adjusted
Amount Assets (1) Amount Assets (1) Amount Assets (1)
--------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 (leverage) capital $ 20,691 12.39 % $ 29,985 16.79 % $ 31,670 17.53 %
Tier 1 (leverage) capital
requirement: 6,679 4.00 7,143 4.00 7,227 4.00
Excess 14,012 8.39 22,842 12.79 24,443 13.53
Tier 1 risk adjusted
capital 20,691 30.36 29,985 42.41 31,670 44.50
Tier 1 risk adjusted
capital requirement (2) 2,726 4.00 2,828 4.00 2,847 4.00
Excess 17,965 26.36 27,157 38.41 28,823 40.50
Total risk based capital 21,118 30.99 30,412 43.01 32,097 45.10
Total risk based capital
requirement (2) 5,452 8.00 5,656 8.00 5,693 8.00
Excess 15,666 22.99 24,756 35.01 26,404 37.10
NC Savings Bank capital 21,118 12.65 30,412 17.03 32,097 17.76
NC Savings Bank capital
requirement 8,349 5.00 8,929 5.00 9,034 5.00
Excess 12,769 7.65 21,483 12.03 23,063 12.76
</TABLE>
<TABLE>
<CAPTION>
ProForma Regulatory Capital Position at March 31, 1996
----------------------------------------------------------------------------
3,910,000 Shares sold at 4,496,500 Shares sold at
Price of $10 per share Price of $10 per share
---------------------------------------------------------------------------
Percent of Percent of
Adjusted Adjusted
Amount Assets (1) Amount Assets (1)
---------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Tier 1 (leverage) capital $ 33,355 18.25 % $ 35,293 19.06 %
Tier 1 (leverage) capital
requirement: 7,311 4.00 7,407 4.00
Excess 26,044 14.25 27,886 15.06
Tier 1 risk adjusted
capital 33,355 46.57 35,293 48.92
Tier 1 risk adjusted
capital requirement (2) 2,865 4.00 2,866 4.00
Excess 30,490 42.57 32,407 44.92
Total risk based capital 33,782 47.17 35,720 19.29
Total risk based capital
requirement (2) 5,730 8.00 5,772 8.00
Excess 28,052 39.17 29,948 41.51
NC Savings Bank capital 33,782 18.48 35,720 19.29
NC Savings Bank capital
requirement 9,139 5.00 9,259 5.00
Excess 24,643 13.48 26,461 14.29
</TABLE>
(1) The leverage ratio of Tier 1 capital is based on average assets for
the quarter ended March 31, 1996; Tier 1 risk adjusted capital and risk
based capital is based upon risk-weighted assets outstanding at March
31, 1996; the North Carolina capital requirement is based upon total
assets at March 31, 1996.
(2) Assumes net proceeds are invested in assets that carry a 20% risk
weight.
<PAGE>
ANTICIPATED STOCK PURCHASES BY MANAGEMENT
Directors, officers and employees of Home will be entitled to subscribe for
shares of Common Stock in the Subscription Offering in their capacities as such
and to the extent they qualify as Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Shares purchased by such persons
will be purchased at the same $10.00 price per share that will be paid by other
purchasers in the Offerings. They may also purchase Common Stock in the
Community Offering or in the Syndicated Community Offering, if any, subject to
the maximum purchase limitations applicable to all purchasers of shares in the
Conversion.
The following table sets forth for each of the executive officers and
directors of Home who intends to purchase Common Stock, and for all executive
officers and directors as a group, the aggregate dollar amount of Common Stock
for which such director or executive officer has informed Home he intends to
subscribe. The amounts reflected in the table are estimates only and the actual
shares of Common Stock actually subscribed for by the listed individuals may
differ from the amounts reflected in the table. The following table assumes that
3,910,000 shares of Common Stock will be issued and that sufficient shares will
be available to satisfy the subscriptions of Home's executive officers and
directors.
<TABLE>
<CAPTION>
Anticipated
Anticipated Number As a
Amount of Shares Percent
to be Paid to be of Shares
Name for Shares /(1)/ Purchased Offered
- ---- ---------------- ----------- ----------
<S> <C> <C> <C>
Carl M. Hill, President, CEO and $400,000 40,000 1.02%
Director
Caldwell A. Holbrook, Jr., Director 20,000 2,000 0.05
Joel A. Huneycutt, Director 100,000 10,000 0.26
Douglas Dwight Stokes, Director 150,000 15,000 0.38
R. Ronald Swanner, Executive Vice 10,000 1,000 0.03
President and Director
Greg E. Underwood, Director 15,000 1,500 0.04
-------- ------ ----
Total $695,000 69,500 1.78%
======== ====== =====
</TABLE>
- -------------------------
(1) Subscriptions by the ESOP are not aggregated with shares of Common Stock
purchased by the executive officers and directors listed above. See
"MANAGEMENT OF HOME -- Employee Stock Ownership Plan". Also, grants under
the proposed MRP and shares subject to option under the Stock Option Plan,
if approved by the stockholders of the Holding Company at a meeting of
stockholders following the Conversion, are not aggregated with shares of
Common Stock purchased by the executive officers and directors listed above.
See "MANAGEMENT OF HOME -- Proposed Management Recognition Plan" and
"-- Proposed Stock Option Plan".
(2) If (i) the MRP and Stock Option Plan are approved by the Holding
Company's stockholders, (ii) all restricted shares that could be issued to
directors and executive officers under the MRP are issued, (iii) all options
which could be issued to directors and executive officers under the Stock
Option Plan are issued and are exercised, and (iv) all shares to be issued
under the Stock Option Plan and the MRP are purchased in the open market,
then directors and executive officers would own 425,850 shares or 10.89% of
the 3,910,000 shares outstanding. In addition, the ESOP is expected to
acquire 8% of the shares outstanding, some of which would be issued to
35
<PAGE>
executive officers. See "MANAGEMENT OF HOME -- Employee Stock Ownership
Plan", "-- Proposed Management Recognition Plan" and "-- Proposed Stock
Option Plan".
Without the prior written consent of the Administrator, shares of Common
Stock purchased by directors or executive officers of Home in the Conversion
cannot be sold during a period of one year following the Conversion, except upon
death of the director or executive officer. Such restriction also applies to any
shares issued to such person as a stock dividend, stock split or otherwise with
respect to any of such originally restricted stock.
In addition, the North Carolina conversion regulations provide that
directors and executive officers and their associates are prohibited from
purchasing outstanding shares of Common Stock for a period of three years
following the Conversion, except from or through a broker or dealer registered
with the SEC or Secretary of State of North Carolina, unless the prior written
approval of the Administrator is obtained. This provision does not apply to
negotiated transactions involving more than 1% of the Holding Company's
outstanding Common Stock or to purchases of stock made by or held by one or more
tax-qualified or non-tax-qualified employee stock benefit plans of Home or the
Holding Company which may be attributable to individual executive officers or
directors. Purchases and sales of Common Stock by officers and directors will
also be subject to the short-swing trading prohibitions contained in Section
16(b) of the Exchange Act, and the short-swing trading and other rules
promulgated pursuant to the Exchange Act.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
The purpose of this discussion and analysis is to aid in the understanding
and evaluation of the financial condition and changes therein and the results of
operations of Home. This discussion and analysis is intended to complement the
financial statements and footnotes appearing elsewhere in this document, and
should be read in conjunction therewith.
Changes in Financial Condition
Total assets of Home amounted to $167.0 million at March 31, 1996, which is
an increase of $7.1 million or 4.44% from total assets of Home at September 30,
1995. Home's total assets increased by 12.0 million, or 8.13% from total assets
of 147.8 million outstanding at September 30, 1994. The growth from September
30, 1995 to March 31, 1996 can primarily be attributed to the increase in cash
and cash equivalents, funded by savings deposits growth, offset by a $1.7
million decrease in loans receivable. The growth from September 30, 1994 to
September 30, 1995 was funded by an increase in savings deposits and internal
operating profits and was utilized to increase levels of liquidity and to fund
growth in the securities and loans receivable portfolios.
The principal category of earnings assets is loans receivable which
amounted to $106.7 million, $108.6 million and $106.8 million at March 31, 1996,
September 30, 1995 and 1994, respectively. Home was able to increase the size of
its loan portfolio during 1995 primarily through its marketing efforts in the
origination of permanent residential 1-4 family mortgages. All other categories
of Home's loan portfolio have remained fairly consistent from 1994 to 1996. Loan
originations for the six months ended March 31, 1996 totaled $9.1 million and
were funded primarily by loan principal repayments of $10.7 million as the loan
portfolio decreased by $1.7 million. Loan originations for the year ended
September 30, 1995 totaled $17.9 million while principal repayments totaled
$16.2 million for a net increase in the loan portfolio of $1.7 million over
1994. The growth was primarily in the residential 1-4 family category.
Management believes that its marketing efforts, competitive rates and contacts
within its community contributed to the increased loan demand in 1995. Home
maintains underwriting and credit standards designed to maintain the quality of
the loan portfolio. Nonperforming loans at March 31, 1996, September 30, 1995
and 1994 totaled $702,000, $981,000 and $946,000, respectively and were 0.64%,
0.87% and 0.85% of total loans, respectively.
36
<PAGE>
In addition to loans, Home invests in U. S. Treasury and Government agency
securities. Management does not engage in the practice of trading securities,
rather, Home's investment portfolio consists primarily of securities designated
as available for sale. Investment securities, excluding interest-bearing
deposits and FHLB stock, at March 31, 1996, September 30, 1995 and 1994 totaled
$35.9 million, $35.5 million and $30.4 million, respectively. The securities
portfolio remained relatively unchanged for the six-month period ended March 31,
1996 from September 30, 1995 as $10.5 million of securities matured and $10.9
million of new securities were purchased. The securities portfolio increased
$5.1 million from $30.4 million at September 30, 1994 to $35.5 million at
September 30, 1995 as $6.5 million securities matured and $12.0 million in new
securities were purchased. The exceptional deposit growth in 1995 exceeded loan
demand and funded the securities portfolio growth.
Cash and cash equivalents for Home have increased from $6.6 million at
September 30, 1994 to $20.1 million at March 31, 1996 as Home has sought to
increase liquidity to have funds available for future expanded loan growth. Cash
and cash equivalents increased $8.6 million at March 31, 1996 and $4.8 million
at September 30, 1995 from 1994. These increases were funded by savings deposit
growth.
Home has experienced substantial growth in savings deposits. At March 31,
1996 and September 30, 1995 Home increased deposits $6.6 million and $10.3
million to $144.3 million and $137.6 million, respectively. Home priced its
deposits in a fashion to be at or near the top of the market because of its
dependence on the local market for funds availability.
Home's equity which consists entirely of retained earnings and unrealized
gain (loss) on securities available for sale, net of tax amounted to $20.7
million, $20.4 million and $18.3 million at March 31, 1996, September 30, 1995
and 1994, respectively. During 1994 Home adopted SFAS No. 115 and has classified
a portion of its investment as available for sale which requires reporting such
investments at market with unrealized gains or losses, net of tax, shown as a
separate component of equity. The equity component for net unrealized gains
(losses) at March 31, 1996, September 30, 1995 and 1994 amounted to $29,000,
$34,000 and $(220,000), respectively.
Comparison of Operating Results for the Six-Month Period Ended March 31,
1996 and 1995
Net Income. Net income for the six-month periods ended March 31, 1996 and
March 31, 1995 was $299,000 and $1.2 million, respectively. Net income decreased
in 1996 from 1995 primarily due in part to a lower net interest income due to a
larger interest rate spread in 1995. Additionally, Home provided additional
provisions for loan losses and incurred an increase in noninterest expenses.
Net Interest Income. Net interest income amounted to $2.5 million and $3.3
million during the six-month periods ended March 31, 1996 and 1995,
respectively. The average balance of interest earning assets and interest
bearing liabilities increased by a net of $655,000 during 1996; however, Home's
interest rate spread decreased from 4.19% in 1995 to 2.61% in 1996 as a result
of an increase in Home's cost of funds coupled with a slight decrease in Home's
yield on interest earning assets. The narrowing of Home's spread in 1996 had a
negative impact on net interest income and more than offset the higher balance
of net interest earning assets outstanding during 1996.
See the table on page 40 which analyzes the dollar amount of changes in
interest income and interest expense for major components of interest earning
assets and interest bearing liabilities. The table distinguishes between
(i) changes attributable to volume (changes in volume multiplied by the prior
period's rate) (ii) changes attributable to rate (changes in rate multiplied by
the prior period's volume) and (iii) mixed changes (changes in volume multiplied
by changes in rate).
37
<PAGE>
Interest Income. Interest income amounted to $6.4 million and $5.8 million
for the six-month periods ended March 31, 1996 and 1995, respectively, an
increase of $520,000 or 8.9%. Although Home experienced a 17 basis point decline
in total yield, it was more than offset by the increase in Home's average
balances of interest earning assets. The increase in average balances was
primarily in investments and interest bearing deposits, while the average
balance of loans receivable remained fairly constant.
Interest Expense. Interest expense increased $1.3 million for the six-month
period ended March 31, 1996 to $3.8 million from $2.5 million for the same
period ended March 31, 1995. Home's average balance of outstanding deposits
increased $15.3 million, while the average cost of funds increased from 4.03%
during 1995 to 5.44 % during 1996. The increase in cost of funds was primarily
in certificates of deposit which increased from 4.38% during 1995 to 6.11%
during 1996. The increase in outstanding average balance was primarily due to
certificates of deposits, while core deposits of passbook, NOW and money market
accounts declined as customers have shifted funds into longer term certificates
of deposit. Management believes Home's cost of funds was indicative of changes
in overall market rates.
See the table on page 42 for additional information concerning Home's
yields on interest earnings assets and cost of funds on interest bearing
liabilities for the six-months periods ended March 31, 1996 and 1995.
Provision for Loan Losses and Asset Quality
Home's provision for loan losses amounted to $300,000 and $- 0 - in 1996
and 1995. The provision, which is charged to operations, and the resulting loan
loss allowances are amounts Home's management believes will be adequate to
absorb potential losses on existing loans that may become uncollectible. Loans
are charged off against the allowance when management believes that
collectibility is unlikely. The evaluation to increase or decrease the provision
and resulting allowances is based both on prior loan loss experience and other
factors, such as changes in the nature and volume of the loan portfolio, overall
portfolio quality, and current economic conditions. During the six months ended
March 31, 1996 management determined that its allowance for loan losses should
be increased to reflect peer group banks levels of outstanding reserves and for
risk in the portfolio as a result of economic environment of the market area and
manufacturing plant closings.
Home's level of nonperforming loans, defined as loans past due 90 days or
more, has historically been low as a percentage of total loans outstanding. Home
had loans amounting to $702,000 which were delinquent more than 90 days at March
31, 1996. In addition, Home had $73,000 of real estate owned at March 31, 1996.
Home adopted policies which it believes provides for prudent and adequate levels
of loan loss allowances.
At March 31, 1996, Home's level of general valuation allowances for loan
losses amounted to $427,000, which management believes is adequate to absorb
potential losses in its loan portfolio.
Noninterest Income. Noninterest income amounted to $62,000 and $61,000 for
the six-month period ended March 31, 1996 and 1995, respectively. Noninterest
income consists primarily of service charges and fees associated with Home's
checking accounts. Home's level of noninterest income has remained fairly stable
over the periods.
Noninterest Expense. Noninterest expense consists primarily of operating
expenses for compensation and employee benefits, occupancy, federal deposit
insurance premiums, data processing charges and other operating expense.
Noninterest expense amounted to $1.8 million and $1.4 million for the six months
ended March 31, 1996 and 1995, respectively. Compensation increased $174,000 for
the six-month period ended March 31, 1996 from a comparable period ended 1995
due to inflationary increases and additional unfunded deferred compensation
agreements entered into during the period ended March 31, 1996. Occupancy
expenses, data processing and federal insurance premium expense increased
nominally during the six months ended March 31, 1996 compared to 1995.
Charitable contributions increased
38
<PAGE>
$167,000 during 1996 primarily due to Home's funding of one-time prior
commitments to Wingate University ($40,000), Boy Scouts ($10,000), Stanly
Community College ($20,000) and Pfeiffer College ($80,000).
Income Taxes. Home's effective income tax rate was 38.7% and 37.3% for the
six-month period ended March 31, 1996 and 1995 and reflect normal expected rates
on taxable income.
Comparison of Operating Results for the Years Ended September 30, 1995, 1994
and 1993
Net Income. Net income for the years ended September 30, 1995, 1994 and
1993, amounted to $1.9 million, $2.0 million and $3.3 million, respectively.
While net interest income was stable during 1994 and 1993, an increase in cost
of funds during 1995 resulted in an increase in interest expense of $1.0 million
and a corresponding decrease in net interest income of $1.0 million. Home also
incurred an increase in noninterest expenses during 1994 which remained at
approximately the same level for 1995 and implemented SFAS 109, the effect of
which was to record an additional $485,000 in income tax expense during 1994.
Net Interest Income. Net interest income for the years ended September 30,
1995, 1994 and 1993 amounted to $6.0 million, $7.0 million and $7.0 million,
respectively. The average outstanding balance of interest earning assets and
interest bearing liabilities was relatively stable during 1994 and 1993 and
increased $2.7 million to $16.5 million during 1995. Home's interest rate spread
increased to 4.38% in 1994 from 4.21% in 1993 but declined in 1995 to 3.59%. The
narrowing of Home's interest rate spread in 1995 had a negative impact on net
interest income which more than offset the income effect due to the $2.7 million
increase in net average balances of interest earning assets. The net interest
income for 1994 and 1993 were comparable as decreases on interest earning asset
yields were offset by decreases in interest bearing liabilities cost of funds.
The following table analyzes the dollar amount of changes in interest
income and interest expense for major components of interest earning assets and
interest bearing liabilities. The table distinguishes between (i) changes
attributable to volume (changes in volume multiplied by the prior period's
rate), (ii) changes attributable to rate (changes in rate multiplied by the
prior period's volume) and (iii) mixed changes (changes in volume multiplied by
changes in rate).
39
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31,
1996 vs. 1995
---------------------------------------------------------
Increase (Decrease) Attributable to
---------------------------------------------------------
Rate/
Volume Rate Volume Net
(in Thousands)
<S> <C> <C> <C> <C>
Interest income on:
Interest-bearing deposits $ 565 (114) (146) 305
Investments 76 121 5 202
Mortgage-backed securities 12 (19) (1) (8)
Loans receivable (6) 27 0 21
---------- ---------- ----------- -----------
Total interest income on
interest-earning assets 647 15 (142) 520
---------- ---------- ----------- -----------
Interest expense on:
Passbook savings (21) (2) 0 (23)
NOW and money market (20) (37) 2 55
Certificate of deposit 704 598 75 1,377
---------- ---------- ----------- -----------
Total interest expense on
interest-bearing liabilities 563 559 77 1,299
---------- ---------- ----------- -----------
Increase (decrease) in net
interest income $ (16) $ (544) $ (219) $ (779)
========== ========== =========== ===========
<CAPTION>
Six Months Ended September 30,
1995 vs. 1994
---------------------------------------------------------
Increase (Decrease) Attributable to
---------------------------------------------------------
Rate/
Volume Rate Volume Net
(in Thousands)
<S> <C> <C> <C> <C>
Interest income on:
Interest-bearing deposits $ (237) 276 $ (166) (127)
Investments 330 26 7 363
Mortgage-backed securities (90) 19 (4) (75)
Loans receivable (96) (80) 1 (175)
---------- ---------- ----------- -----------
Total interest income on
interest-earning assets (93) 241 (162) (14)
---------- ---------- ----------- -----------
Interest expense on:
Passbook savings (64) 1 0 (63)
NOW and money market (90) 8 (1) (83)
Certificate of deposit (7) 1,162 (2) 1,153
---------- ---------- ----------- -----------
Total interest expense on
interest-bearing liabilities (161) 1,171 (3) 1,007
---------- ---------- ----------- -----------
Increase (decrease) in net
interest income $ 68 $ (930) $ (159) $ (1,021)
========== ========== =========== ===========
<CAPTION>
Six Months Ended September 30,
1994 vs. 1993
---------------------------------------------------------
Increase (Decrease) Attributable to
---------------------------------------------------------
Rate/
Volume Rate Volume Net
(in Thousands)
<S> <C> <C> <C> <C>
Interest income on:
Interest-bearing deposits $ 118 51 $ 31 $ 200
Investments 118 (211) (19) (112)
Mortgage-backed securities (136) (40) 9 (167)
Loans receivable (498) (496) 23 (971)
---------- ---------- ----------- -----------
Total interest income on
interest-earning assets (398) (696) 44 (1,050)
---------- ---------- ----------- -----------
Interest expense on:
Passbook savings 44 (39) (3) 2
NOW and money market 111 (64) (13) 34
Certificate of deposit (388) (773) 61 (1,100)
---------- ---------- ----------- -----------
Total interest expense on
interest-bearing liabilities (233) (876) 45 (1,064)
---------- ---------- ----------- -----------
Increase (decrease) in net
interest income $ (165) $ 160 $ (1) $ 14
========== ========== =========== ===========
</TABLE>
<PAGE>
Interest Income. Interest income amounted to $12.0 million, $12.0 million
and $13.0 million for the years ended September 30, 1995, 1994 and 1993,
respectively. Home's average yield on interest earning assets decreased to 8.06%
in 1994 from 8.57% in 1993 and rebounded to 8.20% in 1995. The primary interest
earning asset is loans which experienced a slight decrease in both average yield
and average outstanding balance during 1995. In 1994 loan demand declined and
the average balances decreased substantially to $109.8 million from $117.1
million in 1993. Additionally, average yields on loans decreased from 9.29% in
1993 to 8.95% in 1995 resulting in a decrease in interest income of $175,000 in
1995 and $971,000 in 1994. These declines in loan income were offset, however,
in 1995 and 1994 by income due to increases in average yields and average
outstanding balances in interest bearing deposits and investment securities.
Interest Expense. Interest expense amounted to 6.0 million, $5.0 million
and $6.0 million for the years ended September 30, 1995, 1994 and 1993,
respectively. Interest expense increased in 1995 as a $5.4 million decrease in
average outstanding balances was more than offset by an increase in cost of
funds to 4.61% from 3.68% for the year ended 1994. Certificates of deposit
average outstanding balance was stable during this period of time; however, cost
of funds on certificates of deposit increased to 5.16% from 3.95% during 1994.
Interest expense had declined substantially in 1994 from 1993 due to a
significant decrease in average cost of funds to 3.68% from 4.36%.
The following table provides for additional information concerning Home's
yields on interest earning assets and cost of funds on interest bearing
liabilities for the years ended September 30, 1995, 1994 and 1993.
41
<PAGE>
<TABLE>
<CAPTION>
For the Six Months Ended March 31,
----------------------------------------------------------------------------------
At March 31, 1996 1995
1996 --------------------------------------- ---------------------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/
Rate (6) Balance Interest Rate (4) Balance Interest Rate (4)
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest bearing deposits 5.35% $ 13,156 $ 373 5.67% $ 1,779 $ 68 7.64%
Investments (1) 5.77% 31,364 938 5.98% 26,833 736 5.49%
Mortgage-backed securities 7.71% 5,174 196 7.58% 5,023 204 8.12%
Loans receivable, net (5) 8.60% 108,075 4,844 8.96% 108,182 4,823 8.92%
----------- ----------- ----------- -----------
Total interest-earning assets 7.78% 157,769 $ 6,351 8.05% 141,817 $ 5,831 8.22%
----------- -----------
Non-interest-earning assets 6,136 4,610
----------- -----------
Total $ 163,905 $ 146,427
=========== ===========
Liabilities and retained earnings:
Interest-bearing liabilities:
Passbook savings 3.00% $ 15,275 $ 231 3.02% $ 16,805 $ 255 3.03%
NOW and money market 2.63% 14,769 214 2.90% 17,183 270 3.14%
Certificates of deposit 6.09% 110,852 3,386 6.11% 91,611 2,007 4.38%
----------- ----------- ----------- -----------
Total interest-bearing liabilities 5.40% 140,896 $ 3,831 5.44% 125,599 $ 2,532 4.03%
----------- -----------
Non-interest-bearing liabilities 2,167 1,829
Equity 20,842 18,999
----------- -----------
Total $ 163,905 $ 146,427
=========== ============
Net interest income and interest
rate spread (2) 2.38% $ 2,520 2.61% $ 3,299 4.19%
=========== ===========
Net yield on interest-
earning assets (3) 3.19% 3.19% 4.65%
Ratio of interest-earning assets
to interest-bearing liabilities 111.98% 112.91%
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended September 30,
----------------------------------------------------------------------------------
1995 1994
--------------------------------------- ---------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate (4) Balance Interest Rate
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C>(In Thousands) <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest bearing deposits $ 4,283 $ 270 6.30% $ 10,675 $ 397 3.72%
Investments (1) 28,250 1,585 5.61% 22,239 1,222 5.49%
Mortgage-backed securities 4,842 394 8.14% 5,999 469 7.82%
Loans receivable, net (5) 108,755 9,731 8.95% 109,816 9,906 9.02%
----------- ----------- ----------- -----------
Total interest-earning assets 146,130 $ 11,980 8.20% 148,729 $ 11,994 8.06%
----------- -----------
Non-interest-earning assets 5,004 5,626
----------- -----------
Total $ 151,134 $ 154,355
=========== ===========
Liabilities and retained earnings:
Interest-bearing liabilities:
Passbook savings $ 16,261 $ 463 2.85% $ 18,504 $ 544 2.94%
NOW and money market 15,975 496 3.10% 18,909 579 3.06%
Certificates of deposit 97,382 5,021 5.16% 97,559 3,850 3.95%
----------- ----------- ----------- -----------
Total interest-bearing liabilities 129,618 $ 5,980 4.61% 134,972 $ 4,973 3.68%
----------- -----------
Non-interest-bearing liabilities 1,918 1,705
Equity 19,598 17,678
----------- -----------
Total $ 151,134 $ 154,355
=========== ===========
Net interest income and interest
rate spread (2) $ 6,000 3.59% $ 7,021 4.38%
=========== ===========
Net yield on interest-
earning assets (3) 4.11% 4.72%
Ratio of interest-earning assets
to interest-bearing liabilities 112.74% 110.19%
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------
1993
------------------------------------------
Average
Average Yield/
Balance Interest Rate
----------- ----------- -----------
<S> <C> <C> <C>
Assets:
Interest earning assets:
Interest bearing deposits $ 7,038 $ 197 2.80%
Investments (1) 20,435 1,334 6.53%
Mortgage-backed securities 7,626 636 8.34%
Loans receivable, net (5) 117,055 10,877 9.29%
----------- -----------
Total interest-earning assets 152,154 $ 13,044 8.57%
-----------
Non-interest-earning assets 3,486
-----------
Total $ 155,640
===========
Liabilities and retained earnings:
Interest-bearing liabilities:
Passbook savings $ 17,063 $ 538 3.15%
NOW and money market 15,699 545 3.47%
Certificates of deposit 105,853 4,954 4.68%
----------- -----------
Total interest-bearing liabilities 138,615 $ 6,037 4.36%
-----------
Non-interest-bearing liabilities 2,174
Equity 14,851
-----------
Total $ 155,640
===========
Net interest income and interest
rate spread (2) $ 7,007 4.21%
===========
Net yield on interest-
earning assets (3) 4.61%
Ratio of interest-earning assets
to interest-bearing liabilities 109.77%
</TABLE>
<TABLE>
<S> <C>
(1) Includes investment securities and FHLB of Atlanta common stock.
(2) Interest rate spread represents the difference between the average yield on interest-earning assets
and the average cost of interest-bearing liabilities.
(3) Net yield on interest-earning assets represents net interest income divided by average interest-earning assets.
(4) Average yield/rate for the six months ended March 31, 1996 and 1995 have been annualized.
(5) Loans placed on nonperforming status have been included in the computation of average balances.
(6) The weighted average rate represents the coupon associated with each asset and liability, weighted by the principle balance
associated with each asset and liability.
</TABLE>
42
<PAGE>
Provision for Loan Losses and Asset Quality
Home had no provision for loan losses in 1995, 1994 or 1993. The loan loss
allowances are amounts Home's management believes will be adequate to absorb
potential losses on existing loans that may become uncollectible. Loans are
charged off against the allowance when management believes that collectibility
is unlikely. The evaluation to increase or decrease the provision and resulting
allowances is based both on prior loan loss experience and other factors, such
as changes in the nature and volume of the loans portfolio, overall portfolio
quality and current economic conditions.
Home's level of nonperforming loans, defined as loans past due 90 days or
more, has historically been low as a percentage of total loans outstanding.
Loans outstanding which were delinquent more than 90 days were approximately
$981,000, $946,000 and $844,000 at September 30, 1995, 1994 and 1993,
respectively. Foreclosures or real estate transfers in lieu of foreclosures
amounted to $209,000, $212,000 and $376,000 in 1995, 1994 and 1993,
respectively. Home has adopted policies which it believes provide for prudent
and adequate levels of loan loss allowances.
At September 30, 1995, Home's level of general valuation allowances for
loan losses amounted to $137,000, which management believes is adequate to
absorb potential losses in its loan portfolio.
Noninterest Income. Noninterest income amounted to $126,000, $147,000 and
$206,000 for the years ended September 30, 1995, 1994 and 1993, respectively.
Noninterest income consists primarily of service charges and fees associated
with Home's checking accounts. Home's level of noninterest income has remained
fairly stable over the three years ended September 30, 1995.
Noninterest Expense. Noninterest expense consists primarily of operating
expenses for compensation and employee benefit, occupancy, federal deposit
insurance premiums, data processing charges, pension expense and other operating
expense. Noninterest expense amounted to $3.2 million, $3.2 million and $2.1
million for the years ended September 30, 1995, 1994 and 1993, respectively.
Compensation expense increased $535,000 and $306,000 during the years ended
September 30, 1995 and 1994, respectively. The increases were due to additional
personnel, inflationary increases and additional pension and supplemental income
agreements entered into increasing compensation $364,000 and $121,000 during
1995 and 1994, respectively. Home terminated its old defined benefit pension
plan during 1994 incurring $493,000 of expense related to termination of the
plan. Occupancy expenses, data processing, federal insurance premium and other
operating expenses increased nominally during the three year period ended
September 30, 1995.
Income Taxes. Home's effective income tax rate was 36.2%, 37.3% and 34.8%
for the year ended September 30, 1995, 1994 and 1993, respectively and reflect
normal expected rates on taxable income. Additionally, Home adopted SFAS 109
during 1994 resulting in $485,000 of expense for recording the cumulative effect
on prior years of changing to a different method of accounting for income taxes.
Capital Resources and Liquidity
The objective of Home's liquidity management is to ensure the availability
of sufficient cash flows to meet all of its financial commitments. Liquidity
management addresses Home's ability to meet deposit withdrawals either on demand
or at contractual maturity, to repay borrowings, if any, as they mature and to
originate new loans and make investments as opportunities arise.
43
<PAGE>
Significant liquidity sources for Home are cash provided by new savings
deposits and operating activities. Cash flows from investing activities
typically are dependent on the level of loan demand and the amount of new
savings deposits that Home is able to generate. During the six months ended
March 31, 1996 new savings deposits provided $6.6 million in net cash inflow
while operating and investment activities provided funds totaling $458,000 and
$1.3 million, respectively. These funds were used primarily to increase
liquidity by investing in interest earning deposits. Due to a decline in the
loan portfolio in 1996 loan principal payments exceeded originations by $1.7
million. During 1995 new savings deposits provided $10.3 million in funds and
operating activities provided $1.5 million while investing activities generated
a net outflow of cash amounting to $6.5 million with the excess cash generated
being invested in short term interest earning deposits. During 1995 loan demand
increased Home's loan portfolio by approximately $2.8 million. During 1994
Home's savings deposit portfolio declined resulting in cash outflow of
approximately $12.4 million. Additionally, Home purchased securities in excess
of maturing securities totaling $4.7 million.
These cash outflows were funded by operating activities and by allowing the
loan portfolio to decline as loan principal repayments of $30.8 million exceeded
originations by $10.2 million. Cash provided by operations and deposit growth
has enabled Home to place little dependence on borrowed funds for its liquidity
needs; however, Home does maintain readily available sources with the FHLB of
Atlanta in the event it needs to borrow funds. Home had no borrowings
outstanding during 1996, 1995 or 1994. Home's primary source of financing
activities is its deposit accounts.
Levels of deposit accounts are impacted primarily by overall market rates
and the pricing policies that Home sets to attract or maintain its deposits,
which are affected by Home's demand for loans and its other liquidity needs.
Approximately 59% of Home's certificates of deposit outstanding at March 31,
1996 are scheduled to mature within the next year. Management believes that
substantially all of these deposits will be renewed and intends to price such
deposits at competitive rates in order to ensure that these deposits are
renewed. Home does not hold brokered deposits or significant levels of public
deposits which are less likely to renew if a higher rate of interest can be
obtained elsewhere. Liquidity levels and Home's operations would be
significantly hindered should a sizable portion of these deposits not be
renewed.
Cash provided by operating and financing activities has historically been
used by Home to make new loans to its customers. Excess cash will be used in the
future to make new loans as demand warrants and to maintain Home's liquid
investment portfolios by offsetting maturities which are timed to provide needed
cash flows to meet anticipated short term liquidity requirements.
As a state chartered savings bank, Home must meet certain liquidity
requirements which are established by the Administrator. Home's liquidity ratio
at March 31, 1996, as computed under such regulations, was considerably in
excess of such requirements. Given its excess liquidity and its ability to
borrow from the FHLB of Atlanta, Home believes that it will have sufficient
funds available to meet anticipated future loan commitments, unexpected deposit
withdrawals, or other cash requirements.
Asset/Liability Management
Home's asset/liability management, or interest rate risk management, is
focused primarily on evaluating and managing Home's net interest income given
various risk criteria. Factors beyond Home's control, such as the effects of
changes in market interest rates and competition, may also have an impact on the
management of interest rate risk.
In the absence of other factors, Home's overall yield on interest-earning
assets will increase as will its cost of funds on its interest-bearing
liabilities when market rates increase over an extended period of time.
Inversely, Home's yields and cost of funds will decrease when market rates
decline. Home is able to manage these swings to some extent by attempting to
control the maturity or rate adjustments of its interest-earning assets and
interest-bearing liabilities over
44
<PAGE>
given periods of time. Home's "gap" is typically described as the difference
between the amounts of such assets and liabilities which reprice within a period
of time. In a declining interest rate environment, a negative gap, or a
situation where Home's interest-bearing liabilities subject to repricing exceed
the level of interest-earning assets which will mature or reprice, will have a
favorable impact on Home's net interest income. At March 31, 1996, Home had a
one-year sensitivity gap of negative 41.58%. Conversely, an increase in general
market rates over a sustained period of time will tend to affect Home's net
interest income adversely.
In order to minimize the potential effects of adverse material and
prolonged increases or decreases in market interest rates on Home's operations,
management has implemented an asset/liability program designed to stabilize
Home's interest rate gap. The program emphasizes the investment of excess cash
in short or intermediate term interest-earning assets, and the solicitation of
transaction deposit accounts which are less sensitive to changes in interest
rates and can be repriced rapidly.
In addition to shortening the average repricing period of its assets, Home
has sought to lengthen the average maturity of its liabilities by adopting a
tiered pricing program for its certificates of deposit, which provides higher
rates of interest on its longer term certificates in order to encourage
depositors to invest in certificates with longer maturities.
Although Home's asset/liability management program has generally helped to
decrease the exposure of its earnings to interest rate increases, Home continues
to have a negative gap position which will be adversely impacted during
prolonged periods of rising interest rates and positively affected during
prolonged periods of interest rate declines.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at March 31, 1996, which are projected
to reprice or mature in each of the future time periods shown. The computations
were made without using assumptions for loan repayments or deposit decline.
Except as stated below, the amounts of assets and liabilities shown which
reprice or mature within a given period were determined in accordance with
contractual terms of the assets or liabilities. In making the computations, all
adjustable rate loans were considered to be due at the end of the next upcoming
adjustment period. Fixed rate loans are reflected at their contractual
maturities with consideration given to scheduled payments. Marketable equity
securities and savings accounts with no stated maturities are subject to
immediate repricing and availability and have been classified in the earliest
category. FHLB of Atlanta stock must be maintained at certain regulatory levels
and is classified in the more than ten category. The interest rate sensitivity
of Home's assets and liabilities illustrated in the following table would vary
substantially if different assumptions were used or if actual experience differs
from that indicated by such assumptions.
45
<PAGE>
<TABLE>
<CAPTION>
At March 31, 1996
---------------------------------------------------------
Less than More than More than More than
3 3 Months to 1 Year to 3 Years to
Months 1 Year 3 Years 5 Years
------------ ------------- ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest-earning assets (1):
Loans Receivable:
Adjustable rate 1-4 family residential $ 3,704 $ 4,046 $ 377 $ 0
Fixed rate 1-4 family residential 404 1,265 3,798 4,506
Other adjustable rate real estate loans 270 298 22 0
Other fixed rate real estate loans 65 204 611 724
Other loans 121 146 27 0
------------ ------------- ------------- -------------
Total loans 4,564 5,959 4,835 5,230
Interest-bearing deposits 11,931 0 0 0
Investment securities
Available for sale 6,004 4,017 18,899 1,008
Nonmarketable equity securities 0 0 0 0
Mortgage-backed securities (2) 55 171 510 598
------------ ------------- ------------- -------------
Total interest-earning assets $ 22,554 $ 10,147 $ 24,244 $ 6,836
============ ============= ============= =============
Interest-bearing liabilities:
Deposits:
Certificates of deposit $ 21,573 $ 45,783 $ 46,372 $ 0
Money market deposit accounts 7,529 0 0 0
NOW and commercial checking accounts 7,433 0 0 0
Passbook savings 15,390 0 0 0
------------ ------------- ------------- -------------
51,925 45,783 46,372 0
Total deposits ------------ ------------- ------------- -------------
$ 51,925 $ 45,783 $ 46,372 $ 0
Total interest-bearing liabilities ============ ============= ============= =============
$ (29,371) $ (35,636) $ (22,128) $ 6,836
Interest sensitivity gap per report (29,371) (65,007) (87,135) (80,299)
Cumulative interest sensitivity gap
Cumulative gap as a percentage of -18.79% -41.58% -55.73% -51.36%
total interest-earning assets
Cumulative interest-earning assets 43.44% 33.47% 39.52% 44.27%
as a percentage of interest-bearing liabilities
</TABLE>
<TABLE>
<CAPTION>
At March 31, 1996
------------------------------------------
More than
5 Years to More than
10 Years 10 Years Total
------------ ------------- -------------
<S> <C> <C> <C>
Interest-earning assets (1):
Loans Receivable:
Adjustable rate 1-4 family residential $ 0 $ 0 $ 8,127
Fixed rate 1-4 family residential 15,286 59,333 84,592
Other adjustable rate real estate loans 0 0 590
Other fixed rate real estate loans 2,452 9,478 13,534
Other loans 0 0 294
------------ ------------- -------------
Total loans 17,738 68,811 107,137
Interest-bearing deposits 0 0 11,931
Investment securities 0
Available for sale 0 0 29,928
Nonmarketable equity securities 0 1,361 1,361
Mortgage-backed securities (2) 1,856 2,797 5,987
------------ ------------- -------------
Total interest-earning assets $ 19,594 $ 72,969 $ 156,344
============ ============= =============
Interest-bearing liabilities:
Deposits:
Certificates of deposit $ 0 $ 0 $ 113,728
Money market deposit accounts 0 0 7,529
NOW and commercial checking accounts 0 0 7,433
Passbook savings 0 0 15,390
------------ ------------- -------------
Total deposits 0 0 144,080
------------ ------------- -------------
Total interest-bearing liabilities $ 0 $ 0 $ 144,080
============ ============= =============
Interest sensitivity gap per report $ 19,594 $ 72,969
Cumulative interest sensitivity gap (60,705) 12,264
Cumulative gap as a percentage of
total interest-earning assets -38.83% 7.84%
Cumulative interest-earning assets
as a percentage of interest-bearing liabilities 57.87% 108.51%
</TABLE>
(1) Interest-earning assets are included in th period in which the balances are
expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments and contractual maturities.
(2) Based upon historical repayment experience.
46
<PAGE>
Impact of Inflation and Changing Prices
The financial statements and accompanying footnotes have been prepared in
accordance with generally accepted accounting principles ("GAAP"), which require
the measurement of financial position and operating results in terms of
historical dollars without consideration for changes in the relative purchasing
power of money over time due to inflation. The assets and liabilities of Home
are primarily monetary in nature and changes in market interest rates have a
greater impact on Home's performance than do the effects of inflation.
BUSINESS OF THE HOLDING COMPANY
Prior to the Conversion, the Holding Company will not transact any material
business. Following the Conversion, in addition to directing the business
activities of Home, the Holding Company will invest the proceeds of the
Conversion which are retained by it. See "USE OF PROCEEDS". Upon consummation of
the Conversion, the Holding Company will have no significant assets other than
the shares of Home's capital stock acquired in the Conversion, the loan
receivable held with respect to its loan to the ESOP and that portion of the net
proceeds of the Conversion retained by it, and will have no significant
liabilities. Cash flow to the Holding Company will be dependent upon investment
earnings from the net proceeds retained by it in the Conversion and any
dividends received from Home. Presently, there are no agreements or
understandings for expansion of the Holding Company's operations. Initially, the
Holding Company will neither own nor lease any property, but will instead use
the premises, equipment and furniture of Home. At the present time, the Holding
Company does not intend to employ any persons other than its officers (who are
not anticipated to be separately compensated by the Holding Company), but will
utilize the support staff of Home from time to time. Additional employees will
be hired as appropriate to the extent the Holding Company expands its business
in the future.
BUSINESS OF HOME
General
Home is engaged primarily in the business of attracting retail deposits
from the general public and using such deposits to make mortgage loans secured
by real estate. Home makes mortgage loans secured by residential real property,
including one-to-four family residential real estate loans, home equity line of
credit loans and other subordinate lien loans, loans secured by improved
nonresidential real property, loans secured by undeveloped real property and
construction loans. Home also makes a limited number of loans which are not
secured by real property, such as loans secured by savings accounts. Home's
primary source of revenue is interest income from its lending activities. Home's
other major sources of revenue are interest and dividend income from investments
and mortgage-backed securities, interest income from its interest-bearing
deposit balances in other depository institutions and fee income from its
lending and deposit activities. The major expenses of Home are interest on
deposits and noninterest expenses such as compensation and fringe benefits,
federal deposit insurance premiums, data processing expenses and branch
occupancy and related expenses.
As a North Carolina-chartered savings bank, Home is subject to examination
and regulation by the FDIC and the Administrator. Upon consummation of the
Conversion, Home, as a subsidiary of the Holding Company, will be subject to
indirect regulation by the Federal Reserve. The business and regulation of Home
are subject to legislative and regulatory changes from time to time, such as
those resulting from the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") and the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "1991 Banking Law"). See "SUPERVISION AND
REGULATION -- Regulation of Home".
47
<PAGE>
Market Area
Home's primary market area is Stanly County, North Carolina. Home's
principal office is in Albemarle, North Carolina and it has one full-service
branch in Locust, North Carolina. Stanly County is located in south central
North Carolina; Albemarle is approximately 30 miles from Charlotte, North
Carolina.
Home's loans and deposits are primarily generated from the areas where its
offices are located. It does not solicit deposits and loans outside its primary
market area and does not use brokers to obtain deposits. Approximately 87% of
Home's deposits are at the Albemarle office. Stanly County is largely rural with
a population of 56,000. Its economy is diversified among manufacturing, trade
and services. Major area employers include Wiscassett Mills Company, Collins and
Aikman Corporation, Michelin Aircraft Tire Company and Alcoa Aluminum Company.
Within the past five years several large manufacturing companies have closed
operations in Stanly County, resulting in the loss of approximately 2,000 jobs.
Over the past five years the local economy has weakened as a result of layoffs
and plant closings by local employers. In December 1995, the North Carolina
Department of Commerce declared Stanly a "distressed county" entitling it to use
state grants and tax credits to lure industry to the area. Population and
household growth, and median and per capita income levels for Stanly County are
generally lower than comparable levels for North Carolina and the nation, while
unemployment levels are generally higher. Management regards the Stanly County
market area as a low growth area in which there is significant competition among
financial services providers for market share. See "BUSINESS OF HOME --
Competition". Management believes that opportunities for future earnings growth
in Home's primary market area are limited in light of these factors.
Lending Activities
General. Home's primary source of revenue is interest and fee income from
its lending activities, consisting primarily of mortgage loans for the purchase
or refinancing of one-to-four family residential real property located in its
primary market area. Home also makes loans secured by improved nonresidential
real estate, construction loans, loans secured by undeveloped real estate and
savings account loans. Approximately 99% of Home's net loan portfolio is secured
by real estate. As of March 31, 1996, all of the loans in Home's real estate
loan portfolio were secured by properties in North Carolina. On March 31, 1996,
Home's largest single outstanding loan had a balance of approximately $480,000.
This loan was performing in accordance with its original terms. In addition to
interest earned on loans, Home receives fees in connection with loan
originations, loan servicing, loan modifications, late payments, loan
assumptions and other miscellaneous services.
Loan Portfolio Composition. Home's net loan portfolio totaled approximately
$106.7 million at March 31, 1996 representing 63.91% of Home's total assets at
such date. At March 31, 1996, 84.60% of Home's net loan portfolio was composed
of one-to-four family residential mortgage loans. Home equity loans, all of
which have adjustable rates, represented 3.53% of Home's net loan portfolio, and
nonresidential real estate loans represented 2.84% of Home's net loan portfolio
on such date.
Home no longer originates adjustable rate mortgage loans, excluding home
equity loans, but continues to hold a small number of adjustable rate loans in
its portfolio. As of March 31, 1996, 4.64% of the loans in Home's loan
portfolio, excluding home equity loans, had adjustable interest rates.
The following table sets forth the composition of Home's loan portfolio by
type of loan at the dates indicated.
48
<PAGE>
<TABLE>
<CAPTION>
At March 31, At September 30,
--------------- -------------------------------------------
1996 1995 1994
--------------- -------------------------------------------
% of % of % of
Amount Total Amount Total Amount Total
--------- -------- --------- -------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $ 90,274 84.60% $ 94,036 86.60% $ 91,674 85.80%
Residential multi-family 712 0.67% 840 0.77% 870 0.81%
Nonresidential real estate 3,034 2.84% 3,013 2.77% 3,157 2.95%
Residential construction 5,973 5.60% 5,368 4.94% 6,015 5.63%
Land 6,426 6.02% 4,890 4.50% 4,998 4.68%
Line of credit 3,766 3.53% 3,875 3.58% 4,056 3.81%
--------- -------- --------- -------- --------- ---------
Total real estate loans 110,185 103.26% 112,022 103.16% 110,770 103.68%
--------- -------- --------- -------- --------- ---------
Consumer loans:
Share 194 0.18% 110 0.10% 105 0.10%
Credit reserve 100 0.09% 221 0.20% 176 0.16%
--------- -------- --------- -------- --------- ---------
Total consumer loans 294 0.27% 331 0.30% 281 0.26%
--------- -------- --------- -------- --------- ---------
Less:
Unearned fees and discounts 545 0.51% 519 0.48% 465 0.44%
Loans in process 2,797 2.62% 3,100 2.85% 3,602 3.37%
Allowance for loan losses 427 0.40% 137 0.13% 140 0.13%
--------- -------- --------- -------- --------- ---------
Total reductions 3,769 3.53% 3,756 3.46% 4,207 3.94%
--------- -------- --------- -------- --------- ---------
Total loans receivable, net $106,710 100.00% $108,597 100.00% $106,844 100.00%
========= ======== ========= ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991
-----------------------------------------------------------------------------
% of % of % of
Amount Total Amount Total Amount Total
---------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $100,437 85.80% $ 96,453 85.28% $101,447 86.95%
Residential multi-family 731 0.62% 763 0.67% 707 0.61%
Nonresidential real estate 3,655 3.12% 4,104 3.63% 4,887 4.19%
Residential construction 6,644 5.68% 5,919 5.23% 4,458 3.82%
Land 4,960 4.24% 5,689 5.03% 4,862 4.17%
Line of credit 3,715 3.17% 3,358 2.97% 2,531 2.17%
---------- -------- --------- -------- --------- ---------
Total real estate loans 120,142 102.63% 116,286 102.81% 118,892 101.91%
---------- -------- --------- -------- --------- ---------
Consumer loans:
Share 290 0.25% 274 0.24% 309 0.26%
Credit reserve 102 0.09% 102 0.08% 91 0.08%
---------- -------- --------- -------- --------- ---------
Total consumer loans 392 0.34% 376 0.32% 400 0.34%
---------- -------- --------- -------- --------- ---------
Less:
Unearned fees and discounts 440 0.38% 306 0.27% 316 0.27%
Loans in process 2,895 2.47% 3,096 2.74% 2,130 1.83%
Allowance for loan losses 144 0.12% 144 0.13% 177 0.15%
---------- -------- --------- -------- --------- ---------
Total reductions 3,479 2.97% 3,546 3.13% 2,623 2.25%
---------- -------- --------- -------- --------- ---------
Total loans receivable, net $117,055 100.00% $113,116 100.00% $116,669 100.00%
========== ======== ========= ======== ========= =========
</TABLE>
49
<PAGE>
The following table sets forth the time to contractual maturity of
Home's loan portfolio at March 31, 1996. Loans which have adjustable rates are
shown as being due in the period during which rates are next subject to change
while fixed rate and other loans are shown as due over the contractual maturity.
Demand loans, loans having no stated maturity and overdrafts are reported as due
in one year or less. The table does not include prepayments, however, it does
include scheduled principal repayments. Prepayments and scheduled repayments in
the loan portfolio totalled $10.7 million, $16.2 million, $30.8 million and
$25.5 million in the six months ended March 31, 1996 and the fiscal years ended
September 30, 1995, 1994 and 1993, respectively. Amounts in the table are net of
loans in process and are net of unamortized loan fees.
<TABLE>
<CAPTION>
At March 31, 1996
--------------------------------------------------------------------
Over 1 Over 3 Over 5
One Year Year to Years to Years to Over 10
Or Less 3 Years 5 Years 10 Years Years Total
-------- ------- ------- -------- --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
Adjustable rate 1-4 family
residential $ 7,750 $ 377 $ -- $ -- $ -- $ 8,127
Fixed rate 1-4 family
residential 1,669 3,798 4,506 15,286 59,333 84,592
Other adjustable rate real
estate loans 568 22 -- -- -- 590
Other fixed rate real estate
loans 269 611 724 2,452 9,478 13,534
Other loans 267 27 -- -- -- 294
Less:
Allowance for loan losses (427) -- -- -- -- (427)
--------- -------- -------- -------- --------- ---------
$ 10,096 $ 4,835 $ 5,230 $ 17,738 $ 68,811 $ 106,710
========= ======== ======== ======== ========= =========
</TABLE>
The following table sets forth the dollar amount at March 31, 1996 of
all loans maturing or repricing on or after March 31, 1997 which have fixed or
adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Adjustable
Rates Rates
----- ----------
(In Thousands)
<S> <C> <C>
Mortgage loans $96,188 $ 399
Other loans 27 --
------- -------
$96,215 $ 399
======= =======
</TABLE>
50
<PAGE>
Origination of Loans. Historically, Home has not originated its
one-to-four family residential mortgage or other loans with the intention that
they will be sold in the secondary market. Accordingly, Home originates fixed
rate one-to-four family residential real estate loans which satisfy Home's
underwriting requirements and are tailored to its local community, but do not
necessarily satisfy various technical FHLMCA and FNMA underwriting requirements
and purchase requirements not related to documentation.
Although Home believes that many of its nonconforming loans are
saleable in the secondary market, some of such nonconforming loans could be sold
only after Home incurred certain costs and/or discounted the purchase price. As
a result, Home's loan portfolio is less liquid than would be the case if it was
composed entirely of loans originated in conformity with secondary market
requirements. In addition, certain types of nonconforming loans are generally
thought to have greater risks of default and nonperformance. However, such loans
generally produce a higher yield than would be produced by conforming loans, and
Home has historically found that its origination of such loans has not resulted
in a high level of nonperforming assets. See "--Nonperforming Assets and Asset
Classification". These nonconforming loans satisfy a need in Home's local
community, and Home intends to continue to originate nonconforming loans.
Substantially all of the one-to-four family residential mortgage loans
originated by Home have a fixed rate of interest because there is very little
demand for adjustable rate loans in Home's market area. As a result, Home offers
30-year fixed rate residential real estate loans but prices its loans to
encourage shorter terms of 10 to 15 years.
Home has instituted a new marketing program in which all of Home's loan
officers visit local realtors to promote Home's residential mortgage products.
The table below sets forth Home's loan origination, purchase activity
and loan portfolio repayment experience during the periods indicated.
51
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31, Year Ended September 30,
-------------------------- ------------------------------------------
1996 1995 1995 1994 1993
----------- ------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans receivable, net, beginning
of period $ 108,597 $ 106,844 $ 106,844 $ 117,055 $ 113,116
----------- ------------ ------------ ------------ ------------
Loan originations:
Residential 1-4 family 5,499 8,530 10,190 12,777 19,377
Residential multifamily - 58 58 - -
Nonresidential real estate - 272 333 308 625
Residential construction 3,149 6,282 6,282 6,273 7,144
Line of credit 234 323 626 931 1,736
Consumer 190 67 454 329 407
----------- ------------ ------------ ------------ ------------
Total loan originations 9,072 15,532 17,943 20,618 29,289
Loans purchased - - - - -
Principal repayments (10,745) (12,756) (16,192) (30,796) (25,503)
Other changes, net (1) (214) (10) 2 (33) 153
----------- ------------ ------------ ------------ ------------
Increase in loans receivable (1,887) 2,766 1,753 (10,211) 3,939
----------- ------------ ------------ ------------ ------------
Loans receivable, net, end of period $ 106,710 $ 109,610 $ 108,597 $ 106,844 $ 117,055
=========== ============ ============ ============ ============
</TABLE>
(1) Includes changes in deferred loan fees, allowance for loan losses and
undisbursed portion of construction loans.
52
<PAGE>
Residential Real Estate Lending. Home's primary lending activity,
which it intends to continue to emphasize, is the origination of fixed-rate
mortgage loans to enable borrowers to purchase or refinance one-to-four family
residential real property. Consistent with Home's emphasis on being a
community-oriented financial institution, it is and has been Home's strategy to
focus its lending efforts in Stanly County, North Carolina and in contiguous
counties. On March 31, 1996, approximately 84.60% of Home's total net real
estate loan portfolio consisted of one-to-four family residential real estate
loans. These include both loans secured by detached single-family residences and
condominiums and loans secured by housing containing not more than four separate
dwelling units. Of such loans, excluding home equity loans, 4.02% had adjustable
interest rates.
Home also originates fixed-rate mortgage loans secured by owner
occupied property having terms generally ranging from 10 to 30 years in amounts
of up to 90% of the lesser of the value or purchase price. Private mortgage
insurance is always required if the loan amount exceeds 80% of the value of the
property. In addition, Home makes fixed-rate loans secured by non-owner occupied
residential real estate generally having terms of 15 to 20 years in amounts of
up to 80% of the value of the property. Substantially all of the fixed-rate
loans in Home's mortgage loan portfolio have due on sale provisions allowing
Home to declare the unpaid balance due and payable in full upon the sale or
transfer of an interest in the property securing the loan.
While one-to-four family residential loans are normally originated for
10 to 30 year terms, such loans customarily remain outstanding for substantially
shorter periods because borrowers often prepay their loans in full upon sale of
the property pledged as security or upon refinancing the original loan. 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 thrift and mortgage
banking industries have generally used 12-year and 7-year average loan lives in
calculations calling for prepayment assumptions for 30-year residential loans
and 15-year residential loans, respectively. Management believes that Home's
recent loan prepayment experience has been shorter than these assumed average
loan lives due to recent periods of low interest rates and resulting high levels
of refinancing.
Home requires title insurance for its one-to-four family residential
loans. Home also requires that fire and extended coverage casualty insurance
(and, if appropriate, flood insurance) be maintained in an amount at least equal
to the loan amount or replacement cost of the improvements on the property
securing the loans, whichever is greater.
Residential Multifamily. At March 31, 1996, Home had approximately
$712,000 in outstanding loans secured by multifamily residential real estate,
comprising approximately 0.67% of its loan portfolio as of that date.
Substantially all of Home's loans secured by multifamily residential real estate
have fixed rates. Such loans are typically made to a maximum of 80% of the
lesser of the purchase price or appraised value of the property for a maximum
term of 20 years. All such loans are personally guaranteed by individuals.
Nonresidential Real Estate Lending. On March 31, 1996, Home had $3.0
million in outstanding loans secured by nonresidential real estate, including
undeveloped land, comprising approximately 2.84% of its net loan portfolio as of
that date. Most of these loans are secured by office, retail, other commercial
real estate, as well as church properties. Loans secured by undeveloped land
generally do not exceed 65% of the appraised value of the real estate securing
the loans; loans secured by commercial real estate generally do not exceed 80%
of the appraised value of the real estate securing the loans. Loans secured by
commercial real estate and undeveloped land generally are larger than
one-to-four family residential loans and involve a greater degree of risk.
Payments on these loans depend to a large degree on results of operations and
management of the properties and may be affected to a greater extent by adverse
conditions in the real estate market or the economy in general. As of March 31,
1996, the largest nonresidential real estate loan in Home's loan portfolio
totaled $318,000. This loan was performing in accordance with the original loan
contract. See "--Lending Activities--Nonperforming Assets and Asset
Classification".
53
<PAGE>
Home Equity Lines of Credit. At March 31, 1996, Home had approximately
$3.8 million in home equity line of credit loans, representing approximately
3.53% of its net loan portfolio. These loans are often originated at the time of
the closing of a one-to-four family residential real estate loan secured by the
same property. Home's home equity lines of credit have adjustable interest rates
tied to prime interest rates plus a margin. The home equity lines of credit
require monthly payments until the loan is paid in full. Home equity lines of
credit are generally secured by subordinate liens against residential real
property. Home requires that fire and extended coverage casualty insurance (and,
if appropriate, flood insurance) be maintained in an amount at least sufficient
to cover its loan. Home equity loans are generally limited so that the amount of
such loans, along with any senior indebtedness, does not exceed 80% of the value
of the real estate security. Because home equity loans involve revolving lines
of credit which can be drawn over a period of time, Home faces risks associated
with changes in the borrower's financial condition. Because home equity loans
have adjustable interest rates with no rate caps (other than usury limitations),
increased delinquencies could occur if interest rate increases occur and
borrowers are unable to satisfy higher payment requirements. Home intends to
continue to emphasize its home equity program. The presence of home equity loans
in Home's portfolio allows the institution to manage the interest sensitivity of
its assets and liabilities because home equity lines of credit have adjustable
rates which are subject to change monthly and without any significant rate caps.
Construction Lending. Home makes construction loans primarily for the
construction of single-family dwellings. The aggregate outstanding balance of
such loans on March 31, 1996 was approximately $6.0 million, representing
approximately 5.60% of Home's net loan portfolio. Most of these loans were made
to persons who are constructing properties for the purpose of occupying them.
Loans made to individual property owners are "construction-permanent" loans
which generally provide for the payment of interest only during a construction
period, after which the loans convert to a permanent loan at fixed rates having
terms similar to other one-to-four family residential loans. Construction loans
to persons who intend to occupy the finished premises generally have a maximum
loan-to-value ratio of 90%.
Construction loans are generally considered to involve a higher degree
of risk than long-term financing secured by real estate which is already
occupied. A lender's risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at the
completion of construction and the estimated cost (including interest) of
construction. If the estimate of construction costs proves to be inaccurate, the
lender may be required to advance funds beyond the amount originally committed
in order to permit completion of construction. If the estimate of anticipated
value proves to be inaccurate, the lender may have security which has value
insufficient to assure full repayment.
Consumer Loans. In addition to the loans described above, Home
provides overdraft lines of credit in amounts of up to $2,000. Payments are
required in amounts of 5% of the outstanding balance or $10, whichever is
greater. In addition, Home offers loans secured by savings accounts. As of March
31, 1996, Home had approximately $294,000 of such loans outstanding,
representing approximately 0.27% of its net loan portfolio.
Loan Solicitation, Processing and Underwriting. Loan originations are
derived from a number of sources such as referrals from real estate brokers,
present depositors and borrowers, builders, attorneys, walk-in customers and in
some instances, other lenders.
During its loan approval process, Home assesses the applicant's ability
to make principal and interest payments on the loan and the value of the
property securing the loan. Home obtains detailed written loan applications to
determine the borrower's ability to repay and verifies responses on the loan
application through the use of credit reports, financial statements, and other
confirmations. Under current practice, the loan officer of Home analyzes the
loan application and the property involved, and an appraiser inspects and
appraises the property. Home requires independent fee appraisals
54
<PAGE>
on all loans originated primarily on the basis of real estate collateral. Home
also obtains information concerning the income, financial condition, employment
and the credit history of the applicant.
Mortgage loans of up to $250,000 are approved by Home's loan committee
which is composed of its President, Executive Vice President and one other
member of the Board of Directors. All loans in excess of $250,000 must be
approved by the entire Board of Directors.
Normally, upon approval of a residential mortgage loan application,
Home gives a commitment to the applicant that it will make the approved loan at
a stipulated rate any time within a 30-day period. The loan is typically funded
at such rate of interest and on other terms which are based on market conditions
existing as of the date of the commitment. As of March 31, 1996, Home had $1.3
million in such unfunded mortgage loan commitments. In addition, on such date
Home had $2.8 million in unfunded commitments for unused lines of credit and
letters of credit.
Interest Rates, Terms, Points and Fees. Interest rates and fees
charged on Home's loans are affected primarily by the market demand for loans,
competition, the supply of money available for lending purposes and Home's cost
of funds. These factors are affected by, among other things, general economic
conditions and the policies of the federal government, including the Federal
Reserve, tax policies and governmental budgetary matters.
In addition to earning interest on loans, Home receives fees in
connection with originating loans. Fees for loan servicing, loan modifications,
late payments, loan assumptions and other miscellaneous services in connection
with loans are also charged by Home.
Nonperforming Assets and Asset Classification. When a borrower fails
to make a required payment on a loan and does not cure the delinquency promptly,
the loan is classified as delinquent. Delinquencies on all loans are reviewed
monthly by the Board of Directors. The normal procedure followed by Home once a
loan is classified as delinquent is to make contact with the borrower at
prescribed intervals in an effort to bring the loan to a current status, and
late charges are assessed as allowed by law. In most cases, delinquencies are
cured promptly. If a delinquency is not cured, Home normally, subject to any
required prior notice to the borrower, commences foreclosure proceedings. If the
loan is not reinstated within the time permitted for reinstatement, or the
property is not redeemed prior to sale, the property may be sold at a
foreclosure sale. In foreclosure sales, Home may acquire title to the property
through foreclosure, in which case the property so acquired is offered for sale
and may be financed by a loan involving terms more favorable to the borrower
than those normally offered. Any property acquired as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until such
time as it is sold or otherwise disposed of by Home to recover its investment.
As of March 31, 1996, Home had two pieces of single-family property classified
as real estate owned. These properties were recorded on Home's books at $73,000,
the unpaid principal balance of loans secured by such property. The appraised
value of these properties exceeded their unpaid principal balances. Real estate
acquired through, or in lieu of, loan foreclosure is initially recorded at fair
value at the date of foreclosure, establishing a new cost basis. After
foreclosure, valuations are periodically performed by management, and the real
estate is carried at the lower of cost or fair value minus costs to sell.
Revenue and expenses from holding the properties and additions to the valuation
allowance are included in operations.
Home continues to accrue interest on loans delinquent 90 days or more.
However, all such interest income is reversed by the establishment of a reserve
for uncollected interest. Loans are returned to earning status when management
determines, based upon an evaluation of the underlying collateral, together with
the borrower's payment record and financial condition, that the borrower has the
capability and intent to meet the contractual obligations of the loan agreement.
Interest on loans placed on nonperforming status is charged off when management
determines it is not collectible. The allowance is established by a charge to
interest income equal to all interest previously accrued, and income is
subsequently recognized only to the extent cash payments are received until the
loan is returned to performing
55
<PAGE>
status. For the fiscal year ended September 30, 1995 and for the six months
ended March 31, 1996, interest income [expense] that would have been recorded
net of interest income actually recognized on nonperforming loans under the
original terms of such loans was $7,000 and $[11,000], respectively.
The following table sets forth information with respect to
nonperforming assets identified by Home, including nonperforming loans and real
estate owned at the dates indicated.
56
<PAGE>
<TABLE>
<CAPTION>
At September 30,
At March 31, ------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------ ------- ------- -------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total accruing loans for which interest is fully reserved (1)
Mortgage loans delinquent 90 days or more $ 614 $ 923 $ 910 $ 762 $ - $ -
Consumer loans delinquent 90 days or more 88 58 36 82 - -
Real estate owned 73 135 176 119 81 196
--------- ------- ------ ------- ------- --------
Total non-performing assets $ 775 $ 1,116 $ 1,122 $ 963 $ 81 $ 196
========= ======= ====== ======= ======= ========
Non-performing loans to total gross loans 0.64% 0.87% 0.85% 0.70% - -
Non-performing assets to total assets 0.46% 0.70% 0.76% 0.61% 0.05% 0.13%
Total assets $ 166,978 $ 159,863 $ 147,837 $ 157,909 $ 153,370 $ 146,003
Total gross loans $ 110,479 $ 112,353 $ 111,051 $ 120,534 $ 116,662 $ 119,292
</TABLE>
(1) Home has no loans on nonaccrual status
57
<PAGE>
Applicable regulations require Home to "classify" its own assets on a
regular basis. In addition, in connection with examinations of savings
institutions, regulatory examiners have authority to identify problem assets
and, if appropriate, classify them. Problem assets are classified as
"substandard," "doubtful" or "loss," depending on the presence of certain
characteristics as discussed below.
An asset is considered "substandard" if not adequately protected by the
current net worth and paying capacity of the obligor or the collateral pledged,
if any. "Substandard" assets include those characterized by the "distinct
possibility" that the insured institution will sustain "some loss" if the
deficiencies are not corrected. Assets classified as "doubtful" have all of the
weaknesses inherent in those classified "substandard" with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable". Assets classified "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a loss reserve is not warranted.
As of March 31, 1996, Home had approximately $1.5 million of loans
internally classified as "substandard", and no loans classified as "doubtful" or
"loss". Home also identifies assets which possess credit deficiencies or
potential weaknesses deserving close attention by management. These assets may
be considered "special mention" assets and do not yet warrant adverse
classification. At March 31, 1996, Home had approximately $1.1 million of loans
in the "special mention" category.
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 balance of the asset. Home'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 Administrator which can order the
establishment of additional loss allowances. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND OPERATING RESULTS--Comparison of the
Operating Results for the Six-Month Period Ended March 31, 1996 and 1995
- --Provision for Loan Losses and Asset Quality" for a discussion of recent
increases in Home's allowance for loan losses.
The following table sets forth at March 31, 1996, Home's aggregate
carrying value of the assets classified as substandard, doubtful, loss or
"special mention":
58
<PAGE>
<TABLE>
<CAPTION>
Special Mention List Substandard Doubtful Loss
---------------------- ------------------------- ----------------------- ----------------------
Number Amount Number Amount Number Amount Number Amount
------ ------ ------ ------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family 36 $ 1,065 54 $ 1,481 - $ - - $ -
Residential real estate - - - - - - - -
Nonresidential real estate - - - - - - - -
Residential construction - - - - - - - -
Land - - - - - - - -
Line of credit - - - - - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Total real estate loans 36 1,065 54 1,481 - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Consumer loans:
Share - - - - - - - -
Credit reserve - - 8 5 - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Total consumer loans - - 8 5 - - - -
--------- --------- --------- --------- --------- --------- --------- ---------
Total 36 $ 1,065 62 $ 1,486 - $ - - $ -
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
59
<PAGE>
Allowance for Loan Losses. In originating loans, Home recognizes that
credit losses will be experienced and that the risk of loss will vary with,
among other things, the type of loan being made, the creditworthiness of the
borrower over the term of the loan and, in the case of a secured loan, the
quality of the security for the loan as well as general economic conditions. It
is management's policy to maintain an adequate allowance for loan losses based
on, among other things, Home's historical loan loss experience, evaluation of
economic conditions and regular reviews of delinquencies and loan portfolio
quality. Specific allowances are provided for individual loans when ultimate
collection is considered in doubt by management after reviewing the current
status of loans which are contractually past due and considering the fair value
of the security for the loans.
Management continues to actively monitor Home's asset quality, to
charge off loans against the allowance for loan losses when appropriate and to
provide specific loss reserves when necessary. Although management believes it
uses the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ substantially from the economic conditions in the assumptions
used in making the initial determinations. During the six-month period ended
March 31, 1996, Home substantially increased its provision for loan losses
because of the recent economic downturn in Stanly County as a result of
manufacturing plant closings and in order to more closely approximate industry
standards. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS--Comparison of the Operating Results for the Six-Month Period
Ended March 31, 1996 and 1995--Provision for Loan Losses and Asset Quality"
for a discussion of recent increases in Home's allowance for loan losses.
The following table describes the activity related to Home's allowance
for loan losses for the periods indicated.
60
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31, Year Ended September 30,
-------------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $ 137 $ 140 $ 140 $ 144 $ 144 $ 177 $ 103
Provision for loan losses 300 - - - - - 100
Charge-offs:
Residential 1-4 family (8) (3) (3) (3) 0 (34) (23)
Line of credit (9) - - (1) (1) - (3)
Recoveries:
Residential 1-4 family 6 - - - 1 -
Line of credit 1 - - - 1 - -
---------- ----------- ---------- ---------- ---------- ----------- ----------
Balance, end of period $ 427 $ 137 $ 137 $ 140 $ 144 $ 144 $ 177
========== =========== ========== ========== ========== =========== ==========
Net charge-offs as a % of average
loans outstanding 0.009% 0.003% 0.003% 0.004% - % 0.029% 0.023%
Allowance at period end as a %
of nonperforming loans 60.83% 17.39% 13.97% 14.80% 17.06% - % - %
Allowance at period end as a %
of nonperforming assets 55.10% 14.29% 12.28% 12.48% 14.95% 177.78% 90.31%
Allowance at period end as a %
of total gross loans 0.39% 0.12% 0.12% 0.13% 0.12% 0.12% 0.15%
</TABLE>
61
<PAGE>
The following table sets forth the composition of the allowance for
loan losses by type of loan at the dates indicated. The allowance is allocated
to specific categories of loans for statistical purposes only, and may be
applied to loan losses incurred in any loan category.
62
<PAGE>
<TABLE>
<CAPTION>
At March 31, At September 30,
-------------------------------------------------------
1996 1995 1994
------------------------ ------------------------ ------------------------
Amount of Amount of Amount of
Amount of Loans to Amount of Loans to Amount of Loans to
Allowance Gross Loans Allowance Gross Loans Allowance Gross Loans
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $ 326 61.71% $ 125 83.70% $ 77 62.60%
Residential multi-family 1 0.54% -- 0.75% -- 0.78%
Nonresidential real estate 3 2.74% 3 2.68% 4 2.63%
Residential construction -- 5.41% -- 4.78% -- 5.41%
Land 7 5.82% -- 4.35% -- 4.50%
Line of credit -- 3.41% 8 3.45% -- 3.64%
--------- ---------- --------- --------- --------- ---------
Total real estate loans 337 99.73% 136 99.71% 81 99.76%
--------- ---------- --------- --------- --------- ---------
Consumer loans:
Shares -- 0.18% -- 0.10% -- 0.09%
Credit reserve -- 0.09% 1 0.19% -- 0.15%
--------- ---------- --------- --------- --------- ---------
Total consumer loans -- 0.27% 1 0.29% -- 0.24%
--------- ---------- --------- --------- --------- ---------
Unallocated 90 -- -- -- 59 --
--------- ---------- --------- --------- --------- ---------
Total allowance for loan loses $ 427 100.00% $ 137 100.00% $ 140 100.00%
========= ========== ========= ========= ========= =========
<CAPTION>
At September 30,
--------------------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------ ------------------------
Amount of Amount of Amount of
Amount of Loans to Amount of Loans to Amount of Loans to
Allowance Gross Loans Allowance Gross Loans Allowance Gross Loans
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $ 129 63.33% $ 109 82.89% $ 92 85.04%
Residential multi-family -- 0.61% -- 0.55% -- 0.59%
Nonresidential real estate 6 3.00% 14 3.52% -- 4.10%
Residential construction -- 5.51% -- 5.07% -- 3.74%
Land -- 4.12% -- 4.86% -- 4.06%
Line of credit -- 3.06% -- 2.88% -- 2.12%
--------- ---------- --------- --------- --------- ---------
Total real estate loans 135 99.58% 123 99.69% 92 99.67%
--------- ---------- --------- --------- --------- ---------
Consumer loans:
Shares -- 0.08% -- 0.23% -- 0.26%
Credit reserve -- 0.24% -- 0.06% -- 0.07%
--------- ---------- --------- --------- --------- ---------
Total consumer loans -- 0.32% -- 0.31% -- 0.33%
--------- ---------- --------- --------- --------- ---------
Unallocated 9 -- 21 -- 85 --
--------- ---------- --------- --------- --------- ---------
Total allowance for loan loses $ 144 100.00% $ 144 100.00% $ 177 100.00%
========= ========== ========= ========= ========= =========
</TABLE>
<PAGE>
Investment Securities
Interest and dividend income from investment securities generally
provides the second largest source of income to Home after interest on loans.
In addition, Home receives interest income from deposits in other financial
institutions. On March 31, 1996, the carrying value of Home's investment
securities portfolio totalled approximately $49.2 million and consisted of
interest-bearing deposits, U.S. government and agency securities,
mortgage-backed securities, FHLMC stock, stock in the FHLB of Atlanta and in
Central Service Corporation. The mortgage-backed securities consist of
mortgage-backed securities issued by the GNMA.
Investments in mortgage-backed securities involve a risk that, because
of changes in the interest rate environment, actual prepayments may be greater
than estimated prepayments over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments, thereby reducing the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities. In addition, the market value of such securities may be adversely
affected by changes in interest rates.
The FASB has issued Statement of Financial Accounting Standards
No. 115 ("SFAS 115"), "Accounting for Certain Investments in Debt and Equity
Securities" which addresses the accounting and reporting for investments in
equity securities that have readily determinable fair values and for all
investments in debt securities. These investments are to be classified in three
categories and accounted for as follows: (1) debt securities that the entity has
the positive intent and ability to hold to maturity are classified as
held-to-maturity and reported at amortized cost; (2) debt and equity securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities and reported at fair value, with net
unrealized gains and losses included in earnings; and (3) debt securities not
classified as either held-to-maturity or trading securities and equity
securities not classified as trading securities are classified as securities
available-for-sale and reported at fair value, with unrealized gains and losses
excluded from earnings and reported as a separate component of equity. Home has
no trading securities. Home adopted SFAS 115 on September 30, 1994. The adoption
affected only the held-to-maturity and available-for-sale classifications, with
the net unrealized securities gains (loss) on the securities available-for-sale
of $(220,000), net of related deferred taxes of $114,000, reported as a separate
component of equity in its financial statements at September 30, 1994. See
Note 2 of "Notes to Financial Statements".
The amortized cost of securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest income
from investments. Realized gains and losses, and declines in value judged to be
other than temporary are included in net securities gains (losses). The cost of
securities sold is based on the specific identification method.
As a member of the FHLB of Atlanta, Home is required to maintain an
investment in stock of the FHLB of Atlanta equal to the greater of 1% of Home's
outstanding home loans or 5% of its outstanding advances from the FHLB of
Atlanta. No ready market exists for such stock, which is carried at cost. As of
March 31, 1996, Home's investment in stock of the FHLB of Atlanta was $1.3
million.
North Carolina regulations require Home to maintain a minimum amount of
liquid assets which may be invested in specified short-term securities. See
"SUPERVISION AND REGULATION--Regulation of Home--Liquidity". Home is also
permitted to make certain other securities investments.
Home's current investment policy states that Home's investments will be
limited to U.S. Treasury obligations, federal agency securities, corporate notes
and time deposits in the FHLB.
64
<PAGE>
Investment decisions are made by authorized officers of Home under
policies established by the Board of Directors. Such investments are managed in
an effort to produce the highest yield consistent with maintaining safety of
principal and compliance with regulations governing the savings industry.
The following table sets forth certain information regarding Home's
interest-bearing deposits and the amortized cost and market values of Home's
investment and mortgage-backed securities portfolios at the dates indicated.
65
<PAGE>
<TABLE>
<CAPTION>
At March 31, At September 30,
---------------------------------------------
1996 1995 1994
--------------------------- --------------------------- ---------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
----------- ---------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Interest-bearing deposits $ 11,931 11,931 $ 8,622 $ 8,622 $ 3,853 $ 3,853
-------- ------ ------- ------- ------- -------
Mortgage-backed securities, held to maturity 5,987 6,058 4,529 4,642 5,325 5,271
-------- ------ ------- ------- ------- -------
Investment securities:
Held to maturity or for investment:
U.S. Treasury and agency securities - - - - - -
Available for sale:
U.S. Treasury and agency securities 29,880 29,928 30,907 30,959 25,395 25,061
Non-marketable equity securities:
Federal Home Loan Bank stock 1,346 1,346 1,346 1,346 1,346 1,346
Other 15 15 15 15 15 15
-------- ------ ------ ------ ------ -------
31,241 31,289 32,268 32,320 26,756 26,422
-------- ------ ------ ------ ------ -------
Unrealized gain (loss) on securities
available for sale 48 - 52 - (334) -
-------- ------ ------ ------ ------ -------
Total $ 49,207 49,278 $ 45,471 $ 45,584 $ 35,600 $ 35,546
======== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1993
-----------------------
Amortized Fair
Cost Value
--------- -----
<S> <C> <C>
Interest-bearing deposits $ 7,038 $ 7,038
------- -------
Mortgage-backed securities, held to maturity 7,076 7,554
------- -------
Investment securities:
Held to maturity or for investment:
U.S. Treasury and agency securities 18,941 19,335
Available for sale:
U.S. Treasury and agency securities - -
Non-marketable equity securities:
Federal Home Loan Bank stock 1,313 1,313
Other 15 15
------- -------
20,269 20,663
------- -------
Unrealized gain (loss) on securities
available for sale - -
Total $ 34,383 $ 35,255
======= =======
</TABLE>
(1) The net unrealized gain (loss) at March 31, 1996 and September 30, 1995 and
1994 relates to available for sale securities in accordance with SFAS No.
115. The net unrealized gain (loss) is presented in order to reconcile the
"Amortized Cost" of the Bank's securities portfolio in the "Carrying Cost,"
as reflected in the Statements of Financial Condition.
66
<PAGE>
The following table sets forth certain information regarding the
carrying value, weighted average yields and contractual maturities of Home's
interest-bearing deposits, investment and mortgage-backed securities as of
March 31, 1996.
67
<PAGE>
<TABLE>
<CAPTION>
After One Year After Five Years
One Year or Less Through Five Years Through Ten Years After Ten Years Total
----------------- ------------------ ----------------- ----------------- -----------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits $ 11,931 5.35% $ - - $ - - $ - - $ 11,931 5.35%
Mortgage-backed securities - - - - - - 5,987 7.71% 5,987 7.71%
U.S. Treasury securities
Available for sale 10,021 5.78% 19,907 5.69% - - - - 29,928 5.72%
Federal Home Loan Bank Stock(1) - - - - - - 1,346 6.98% 1,346 6.98%
Other(1) - - - - - - 15 - 15 -
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total $ 21,952 5.55% $ 19,907 5.69% $ - - $ 7,348 7.56% $ 49,207 5.91%
</TABLE>
(1) Nonmarketable equity security; substantially all required to be maintained
and assumed to mature in period greater than 10 years.
68
<PAGE>
Deposits and Borrowings
General. Deposits are the primary source of Home's funds for lending
and other investment purposes. In addition to deposits, Home derives funds from
loan principal repayments, loan interest income, investment income,
interest-bearing deposit income, interest income from mortgage-backed securities
and otherwise from its operations. Loan repayments are a relatively stable
source of funds while deposit inflows and outflows may be significantly
influenced by general interest rates and money market conditions. Borrowings may
be used on a short-term basis to compensate for reductions in the availability
of funds from other sources. They may also be used on a longer term basis for
general business purposes. Home has no borrowings outstanding at March 31, 1996;
however, it does maintain borrowing capabilities through the FHLB of Atlanta.
Deposits. Home's deposits have grown significantly during recent
years. On March 31, 1996 and September 30, 1995 and 1994, Home's deposits
totalled $144.3 million, $137.6 million and $127.3 million, respectively.
The following table sets forth information relating to Home's deposit
flows during the periods shown and total deposits at the end of the periods
shown.
<TABLE>
<CAPTION>
For the Six Months
Ended March 31, At or For the Year Ended September 30,
--------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total deposits at $137,647 $127,312 $127,312 $139,685 $138,753 $133,524 $114,462
beginning of period
Net increase (decrease) 2,804 (1,433) 4,355 (17,346) (5,105) (2,813) 9,978
before interest credited
Interest credited 3,831 2,532 5,980 4,973 6,037 8,042 9,084
-------- -------- -------- -------- -------- -------- --------
Total deposits at end of $144,282 $128,411 $137,647 $127,312 $139,685 $138,753 $133,524
period ======== ======== ======== ======== ======== ======== ========
</TABLE>
Home attracts both short-term and long-term deposits from the general
public by offering a variety of accounts and rates. Home offers statement
savings accounts, negotiable order of withdrawal accounts, money market
accounts, and fixed interest rate certificates with varying maturities. All
deposit flows are greatly influenced by economic conditions, the general level
of interest rates, competition, and other factors, including the restructuring
of the thrift industry. Home's savings deposits traditionally have been obtained
primarily from its primary market area. Home utilizes traditional marketing
methods to attract new customers and savings deposits, including print media
advertising, local radio, local cable television and direct mailings. Home does
not advertise for deposits outside of its local market area or utilize the
services of deposit brokers. The vast majority of Home's depositors are
residents of North Carolina. In the unlikely event Home is liquidated following
the Conversion, depositors will be entitled to full payment of their deposit
accounts prior to any payment being made to stockholders.
The following table sets forth certain information regarding Home's
savings deposits at the dates indicated.
69
<PAGE>
<TABLE>
<CAPTION>
At March 31, 1996 At September 30,
---------------------------------------- ------------------------------------------
1995
------------------------------------------
Weighted Weighted
Average % of Average % of
Amount Rate Deposits Amount Rate Deposits
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Demand accounts:
Passbook savings $ 15,390 3.00% 10.67% $ 15,490 3.00% 11.25%
NOW accounts 6,710 2.26% 4.65% 6,331 3.02% 4.60%
Money market deposit accounts 7,529 2.99% 5.22% 7,809 3.25% 5.67%
Noninterest bearing accounts 723 -- 0.50% 562 -- 0.41%
----------- ----------- ----------- ----------- ----------- -----------
Total demand deposits 30,352 2.63% 21.04% 30,192 3.01% 21.03%
----------- ----------- ----------- ----------- ----------- -----------
Certificates of deposit 113,728 6.09% 78.82% 107,280 6.10% 77.94%
----------- ----------- ----------- ----------- ----------- -----------
Accrued interest 202 0.14% 175 0.13%
----------- ----------- ----------- ----------- ----------- -----------
Total deposits $ 144,282 5.40% 100.00% $ 137,647 5.43% 100.00%
=========== =========== =========== =========== =========== ===========
<CAPTION>
At September 30,
----------------------------------------------------------------------------------------------
1994 1993
---------------------------------------- ------------------------------------------
Weighted Weighted
Average % of Average % of
Amount Rate Deposits Amount Rate Deposits
----------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Demand accounts:
Passbook savings $ 17,711 3.00% 13.91% $ 17,984 3.00% 12.87%
NOW accounts 6,300 2.72% 4.95% 5,865 3.00% 4.20%
Money market deposit accounts 12,164 3.25% 0.55% 11,219 3.25% 6.03%
Noninterest bearing accounts 647 -- 0.51% 507 -- 0.36%
----------- ----------- ----------- ----------- ----------- -----------
Total demand deposits 36,822 2.96% 28.92% 35,575 3.04% 25.46%
----------- ----------- ----------- ----------- ----------- -----------
Certificates of deposit 90,378 3.93% 70.99% 104,002 4.06% 74.46%
----------- ----------- ----------- ----------- ----------- -----------
Accrued interest 112 0.09% 106 0.08%
----------- ----------- ----------- ----------- ----------- -----------
Total deposits $ 127,312 3.57% 100.00% $ 139,685 3.82% 100.00%
=========== =========== =========== =========== =========== ===========
</TABLE>
70
<PAGE>
As of March 31, 1996, the aggregate amount of time certificates of
deposit in amounts greater than or equal to $100,000 was $10.1 million. (Some of
these deposits were deposits of state and local governments which are subject to
rebidding from time to time and to securitization requirements.) The following
table presents the maturity of these time certificates of deposit at the dates
indicated.
<TABLE>
<CAPTION>
At
March 31, 1996
--------------
(In Thousands)
<S> <C>
3 Months or less $ 2,120,000
Over 3 months through 6 months 2,490,000
Over 6 months through 12 months 1,915,000
Over 12 months 3,582,000
-----------
Total $10,107,000
===========
</TABLE>
Borrowings. The FHLB system functions in a reserve credit capacity
for savings institutions. As a member, Home is required to own capital stock in
the FHLB of Atlanta and is authorized to apply for advances from the FHLB of
Atlanta on the security of that stock and a floating lien on certain of its real
estate secured loans and other assets. Each credit program has its own interest
rate and range of maturities. Depending on the program, limitations on the
amount of advances are based either on a fixed percentage of an institution's
net worth or on the FHLB of Atlanta's assessment of the institution's
creditworthiness. Home has not had any outstanding borrowings from the FHLB of
Atlanta or any other source in the last five years.
Subsidiaries
Home has no subsidiaries.
Properties
The following table sets forth the location of Home's principal office
in Albemarle, North Carolina and its full service branch office in Locust, North
Carolina, as well as certain other information relating to these offices as of
March 31, 1996. Home owns both the Albemarle and Locust office. Home also owns
two vacant lots which are adjacent to its Albemarle office. Home has no plans
for these lots at the present time.
<TABLE>
<CAPTION>
Net Book Value Deposits
Address of Property (In Thousands)
------- -------------- --------------
<S> <C> <C>
Albemarle: $631,572 $124,805
155 West South Street
Albemarle, North Carolina 28001
Two (2) Vacant Lots $ 26,692
South Second Street
Albemarle, North Carolina 28001
Locust: $215,296 $ 19,477
406 West Main Street
Locust, North Carolina 28097
</TABLE>
The total net book value of Home's furniture, fixtures and equipment on
March 31, 1996 was $374,994.
71
<PAGE>
Legal Proceedings
From time to time, Home is a party to legal proceedings which arise in
the ordinary course of its business. Most commonly, such proceedings are
commenced by Home to enforce obligations owed to it. From time to time,
claims are asserted against Home directly or as defenses and counterclaims
in actions filed by Home. At this time, Home is not a party to any legal
proceeding which is expected to have a material effect on its financial
condition or results of operations.
Competition
Home faces strong competition both in attracting deposits and making
real estate and other loans. Its most direct competition for deposits has
historically come from other savings institutions, credit unions and
commercial banks located in its primary market area, including large
financial institutions which have greater financial and marketing resources
available to them. Home has also faced additional significant competition
for investors' funds from short-term money market securities and other
corporate and government securities. At March 31, 1996, two banks with a
national presence, two large regional banks, one smaller regional bank and
one community bank, and two credit unions had branch locations in Stanly
County. At June 30, 1995, Home had a deposit market share of approximately
23% in Stanly County. The ability of Home to attract and retain savings
deposits depends on its ability to generally provide a rate of return,
liquidity and risk comparable to that offered by competing investment
opportunities.
Home experiences strong competition for real estate loans from other
savings institutions, commercial banks, and mortgage banking companies.
Home competes for loans primarily through the interest rates and loan fees
it charges, the efficiency and quality of services it provides borrowers,
and its more flexible underwriting standards. Competition may increase as a
result of the continuing reduction of restrictions on the interstate
operations of financial institutions.
Employees
As of March 31, 1996, Home had 37 full-time employees. All full-time
employees of Home are covered as a group for basic hospitalization,
including major medical, dental, accidental death and dismemberment
insurance. Optional medical and dental insurance is available for
dependents which must be partially paid by the employee. In addition, Home
maintains a defined benefit retirement plan. Home also maintains a
401(k) retirement plan. Home anticipates continuing both the defined
benefit retirement plan and the 401(k) retirement plan after the Conversion.
In connection with the Conversion, Home has adopted the ESOP, which
will provide benefits to employees of Home. See "MANAGEMENT OF
HOME--Employee Stock Ownership Plan". Also, the Boards of Directors of
Home and the Holding Company anticipate approving, and stockholders of the
Holding Company will be asked to approve, the MRP and the Stock Option
Plan at a meeting of stockholders following the Conversion. See
"MANAGEMENT OF HOME--Proposed Management Recognition Plan" and
"--Proposed Stock Option Plan".
Employees are not represented by any union or collective bargaining
group, and Home considers its employee relations to be good.
72
<PAGE>
TAXATION
Federal Income Taxation
Savings institutions such as Home are subject to the taxing provisions
of the Code, for corporations, as modified by certain provisions
specifically applicable for financial or thrift institutions. Income is
reported using the accrual method of accounting. The maximum corporate
federal income tax rate is 35%.
Thrift institutions which qualify under certain definitional tests and
other conditions of the Code are permitted certain favorable provisions
regarding their deductions from taxable income for annual additions to their
bad debt reserve. A reserve may be established for bad debts on qualifying
real property loans (generally loans secured by interests in real property
improved or to be improved) under (i) a method based on a percentage of the
institution's taxable income, as adjusted (the "percentage of taxable income
method") or (ii) a method based on actual loss experience (the "experience
method"). The reserve for nonqualifying loans is computed using the
experience method.
The percentage of taxable income method is limited to 8% of taxable
income. This method may not raise the reserve to exceed 6% of qualifying
real property loans at the end of the year. Moreover, the additions for
qualifying real property loans, when added to nonqualifying loans, cannot
exceed 12% of the amount by which total deposits or withdrawable accounts
exceed the sum of surplus, undivided profits and reserves at the beginning
of the year. This limitation precluded Home from taking a bad debt
deduction in its 1995 and 1994 tax returns. The experience method is the
amount necessary to increase the balance of the reserve at the close of the
year to the greater of (i) the amount which bears the same ratio to loans
outstanding at the close of the year as the total net bad debts sustained
during the current and five preceding years bear to the sum of the loans
outstanding at the close of such six years or (ii) the balance in the
reserve account at the close of the last taxable year beginning before 1988
(assuming that the loans outstanding have not declined since such date).
In order to qualify for the percentage of income method, an institution
must have at least 60% of its assets as "qualifying assets" which generally
include, cash, obligations of the United States government or an agency or
instrumentality thereof or of a state or political subdivision, residential
real estate-related loans, or loans secured by savings accounts and property
used in the conduct of its business. In addition, it must meet certain
other supervisory tests and operate principally for the purpose of acquiring
savings and investing in loans.
Institutions which become ineligible to use the percentage of income
method must change to either the reserve method or the specific charge-off
method that applies to banks. Large institutions, those generally exceeding
$500 million in assets, must convert to the specific charge-off method.
Proposed regulations require ratable inclusion in income of excess reserves
over a six-year period in the event of ineligibility.
Bad debt reserve balances in excess of the balance computed under the
experience method or amounts maintained in a supplemental reserve built up
prior to 1962 ("excess bad debt reserve") require inclusion in taxable
income upon certain distributions to its stockholders. Distributions in
redemption or liquidation of stock or distributions with respect to its
stock in excess of earnings and profits accumulated in years beginning after
December 31, 1951, are treated as a distribution from the excess bad debt
reserve. When such a distribution takes place and it is treated as from the
excess bad debt reserve, the thrift is required to reduce its reserve by
such amount and simultaneously recognize the amount as an item of taxable
income increased by the amount of income tax imposed on the inclusion.
Dividends not in excess of earnings and profits accumulated since December
31, 1951, will not require inclusion of part or all of the bad debt reserve
in taxable income. Home has accumulated earnings and profits since December
31, 1951, and has an excess in its bad debt reserve. Distributions in
excess of current and accumulated earnings and profits will increase taxable
income. Net
73
<PAGE>
retained earnings at March 31, 1996 includes approximately $2.9 million for
which no provision for federal income tax has been made. See Note 11 to
"Notes to Financial Statements".
Proposed legislation will repeal the special bad debt deduction methods
presently available to thrift institutions under Section 593 of the Code,
effective for taxable years beginning after 1995. In addition under such
legislation, thrift institutions will be required to treat as taxable income
over a six-year period, beginning with the first taxable year commencing
after 1995, the excess bad debt reserves attributable to the special reserve
methods that have built up since tax years beginning in 1988; however, no
recapture will be required for pre-1988 excess bad debt reserves. Under
such legislation, thrifts will become subject prospectively to the same bad
debt reserve treatment as is presently applicable to banks, and most thrifts
would become subject prospectively to increased federal taxation because
they could no longer take advantage of presently authorized special bad debt
reserve methods that they have been using.
Home may also be subject to the corporate alternative minimum tax
("AMT"). This tax is applicable only to the extent it exceeds the regular
corporate income tax. The AMT is imposed at the rate of 20% of the
corporation's alternative minimum taxable income ("AMTI") subject to
applicable statutory exemptions. AMTI is calculated by adding certain tax
preference items and making certain adjustments to the corporation's regular
taxable income. Preference items and adjustments generally applicable to
financial institutions include, but are not limited to, the following:
(i) the excess of the bad debt deduction over the amount that would have
been allowable on the basis of actual experience; (ii) interest on certain
tax-exempt bonds issued after August 7, 1986; and (iii) 75% of the excess,
if any, of a corporation's adjusted earnings and profits over its AMTI (as
otherwise determined with certain adjustments). Net operating loss
carryovers, subject to certain adjustments, may be utilized to offset up to
90% of the AMTI. Credit for AMT paid may be available in future years to
reduce future regular federal income tax liability. Home has not been
subject to the AMT in recent years.
Home's federal income tax returns have not been audited in over 10
years.
State and Local Taxation
Under North Carolina law, the corporate income tax is 7.75% of federal
taxable income as computed under the Code, subject to certain prescribed
adjustments. In addition, for tax years beginning in 1991, 1992, 1993 and
1994, corporate taxpayers were required to pay a surtax equal to 4%, 3%, 2%
and 1%, respectively, of the state income tax otherwise payable by it. An
annual state franchise tax is imposed at a rate of .15% applied to the
greatest of the institutions (i) capital stock, surplus and undivided
profits, (ii) investment in tangible property in North Carolina or
(iii) appraised valuation of property in North Carolina.
SUPERVISION AND REGULATION
Regulation of the Holding Company
General. The Holding Company was organized for the purpose of
acquiring and holding all of the capital stock of Home to be issued in the
Conversion. As a savings bank holding company subject to the Bank Holding
Company Act of 1956, as amended ("BHCA"), the Holding Company will become
subject to certain regulations of the Federal Reserve. Under the BHCA, the
Holding Company's activities and those of its subsidiaries are limited to
banking, managing or controlling banks, furnishing services to or performing
services for its subsidiaries or engaging in any other activity which the
Federal Reserve determines to be so closely related to banking or managing
or controlling banks as to be a proper incident thereto. The BHCA prohibits
the Holding Company from acquiring direct or indirect control of more than
5%
74
<PAGE>
of the outstanding voting stock or substantially all of the assets of any
bank or savings bank or merging or consolidating with another bank holding
company or savings bank holding company without prior approval of the
Federal Reserve.
Additionally, the BHCA prohibits the Holding Company from engaging in,
or acquiring ownership or control of, more than 5% of the outstanding voting
stock of any company engaged in a nonbanking business unless such business
is determined by the Federal Reserve to be so closely related to banking as
to be properly incident thereto. The BHCA generally does not place
territorial restrictions on the activities of such nonbanking related
activities.
Similarly, Federal Reserve approval (or, in certain cases, non-
disapproval) must be obtained prior to any person acquiring control of the
Holding Company. Control is conclusively presumed to exist if, among other
things, a person acquires more than 25% of any class of voting stock of the
Holding Company or controls in any manner the election of a majority of the
directors of the Holding Company. Control is presumed to exist if a person
acquires more than 10% of any class of voting stock and the stock is
registered under Section 12 of the Exchange Act or the acquiror will be the
largest stockholder after the acquisition.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by law and
regulatory policy that are designed to minimize potential loss to the
depositors of such depository institutions and the FDIC insurance funds in
the event the depository institution becomes in danger of default or in
default. For example, under the 1991 Banking Law, to avoid receivership of
an insured depository institution subsidiary, a bank holding company is
required to guarantee the compliance of any insured depository institution
subsidiary that may become "undercapitalized" with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal
banking agency up to the lesser of (i) an amount equal to 5% of the
institution's total assets at the time the institution became
undercapitalized or (ii) the amount which is necessary (or would have been
necessary) to bring the institution into compliance with all acceptable
capital standards as of the time the institution fails to comply with such
capital restoration plan. Under a policy of the Federal Reserve with
respect to bank holding company operations, a bank holding company is
required to serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such institutions
in circumstances where it might not do so absent such policy. The Federal
Reserve under the BHCA also has the authority to require a bank holding
company to terminate any activity or to relinquish control of a nonbank
subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious
risk to the financial soundness and stability of any bank subsidiary of the
bank holding company.
In addition, the "cross-guarantee" provisions of the Federal Deposit
Insurance Act, as amended ("FDIA") require insured depository institutions
under common control to reimburse the FDIC for any loss suffered by either
the SAIF or the BIF as a result of the default of a commonly controlled
insured depository institution or for any assistance provided by the FDIC to
a commonly controlled insured depository institution in danger of default.
The FDIC may decline to enforce the cross-guarantee provisions if it
determines that a waiver is in the best interest of the SAIF or the BIF or
both. The FDIC's claim for damages is superior to claims of stockholders of
the insured depository institution or its holding company but is subordinate
to claims of depositors, secured creditors and holders of subordinated debt
(other than affiliates) of the commonly controlled insured depository
institutions.
No stock repurchases may be made within one year after the Conversion
without the approval of the Administrator. Also, the Holding Company must
notify the Federal Reserve prior to repurchasing Common Stock for in excess
of 10% of its net worth during any rolling 12 month period.
As a result of the Holding Company's ownership of Home, the Holding
Company will be registered under the savings bank holding company laws of
North Carolina. Accordingly, the Holding Company is also subject to
regulation and supervision by the Administrator.
75
<PAGE>
Capital Adequacy Guidelines for Holding Companies. The Federal Reserve
has adopted capital adequacy guidelines for bank holding companies and banks
that are members of the Federal Reserve system and have consolidated assets
of $150 million or more. 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 I 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 I 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 I
(leverage) capital ratio of at least 1% to 2% above the stated minimum.
The 1991 Banking Law requires each federal banking agency, including
the Federal Reserve, to revise its risk-based capital standards within 18
months of enactment of the statute to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and the
risks of non-traditional activities, as well as reflect the actual
performance and expected risk of loss on multi-family mortgages. In
December 1994, the federal banking agencies jointly issued final regulations
effective January 17, 1995, revising the risk-based capital rules to take
account of interest rate risk.
Capital Maintenance Agreement. In connection with the Administrator's
approval of the Holding Company's application to acquire control of Home,
the Holding Company was required to execute a Capital Maintenance Agreement
whereby it has agreed to maintain Home's capital in an amount sufficient to
enable Home to satisfy all regulatory capital requirements.
Federal Securities Law. The Holding Company has filed with the SEC a
Registration Statement under the Securities Act of 1933, as amended (the
"Securities Act"), for the registration of the offering of the Common Stock
in connection with the Conversion. The Holding Company intends to register
the Common Stock with the SEC pursuant to Section 12(b) of the Exchange Act.
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. See "REGISTRATION REQUIREMENTS".
Regulation of Home
General. Federal and state legislation and regulation have
significantly affected the operations of federally insured savings
institutions and other federally regulated financial institutions in the
past several years and have increased competition among savings
institutions, commercial banks and other providers of financial services. In
addition, federal legislation has imposed new limitations on investment
authority, and higher insurance and examination assessments on savings
institutions and has made other changes that may adversely affect the future
operations and competitiveness of savings institutions with other financial
institutions, including commercial banks and their holding companies. The
operations of regulated depository institutions, including Home, will
continue to be subject to changes in applicable statutes and regulations
from time to time.
76
<PAGE>
Home is a North Carolina-chartered savings bank, is a member of the
FHLB system, and its deposits are insured by the FDIC through the SAIF. It
is subject to examination and regulation by the FDIC and the Administrator
and to regulations governing such matters as capital standards, mergers,
establishment of branch offices, subsidiary investments and activities, and
general investment authority. Generally, North Carolina-chartered savings
banks whose deposits are insured by the SAIF are subject to restrictions
with respect to activities and investments, transactions with affiliates and
loans-to-one borrower similar to those applicable to SAIF-insured savings
associations. Such examination and regulation is intended primarily for the
protection of depositors and the federal deposit insurance funds.
Home is subject to various regulations promulgated by the Federal
Reserve including, without limitation, Regulation B (Equal Credit
Opportunity), Regulation D (Reserves), Regulation E (Electronic Fund
Transfers), Regulation O (Loans to Executive Officers, Directors and
Principal Stockholders), Regulation Z (Truth in Lending), Regulation CC
(Availability of Funds) and Regulation DD (Truth in Savings). As holders of
loans secured by real property and as owners of real property, financial
institutions, including Home, may be subject to potential liability under
various statutes and regulations applicable to property owners generally,
including statutes and regulations relating to the environmental condition
of real property.
The FDIC has extensive enforcement authority over North Carolina-
chartered savings banks, including Home. This enforcement authority
includes, among other things, the ability to assess civil money penalties,
to issue cease and desist or removal orders and to initiate injunctive
actions. In general, these enforcement actions may be initiated in response
to violations of laws and regulations and unsafe or unsound practices.
The grounds for appointment of a conservator or receiver for a North
Carolina savings bank on the basis of an institution's financial condition
include: (i) insolvency, in that the assets of the savings bank are less
than its liabilities to depositors and others; (ii) substantial dissipation
of assets or earnings through violations of law or unsafe or unsound
practices; (iii) existence of an unsafe or unsound condition to transact
business; (iv) likelihood that the savings bank will be unable to meet the
demands of its depositors or to pay its obligations in the normal course of
business; and (v) insufficient capital or the incurring or likely incurring
of losses that will deplete substantially all of the institution's capital
with no reasonable prospect of replenishment of capital without federal
assistance.
Transactions with Affiliates. Under current federal law, transactions
between Home and any affiliate are governed by Sections 23A and 23B of the
Federal Reserve Act. An affiliate of Home is any company or entity that
controls, is controlled by or is under common control with the savings bank.
Upon consummation of the Conversion, Home will be an affiliate of the
Holding Company. Generally, Sections 23A and 23B (i) establish certain
collateral requirements for loans to affiliates; (ii) limit the extent to
which the savings institution or its subsidiaries may engage in "covered
transactions" with any one affiliate to an amount equal to 10% of such
savings institution's capital stock and surplus, and contain an aggregate
limit on all such transactions with all affiliates to an amount equal to 20%
of such capital stock and surplus and (iii) require that all such
transactions be on terms substantially the same, or at least as favorable,
to the savings institution or the subsidiary as those provided to a
nonaffiliate. The term "covered transaction" includes the making of loans or
other extensions of credit to an affiliate, the purchase of assets from an
affiliate, the purchase of, or an investment in, the securities of an
affiliate, the acceptance of securities of an affiliate as collateral for a
loan or extension of credit to any person, or issuance of a guarantee,
acceptance or letter of credit on behalf of an affiliate.
Further, current federal law has extended to savings banks the
restrictions contained in Section 22(h) of the Federal Reserve Act with
respect to loans to directors, executive officers and principal
stockholders. Under Section 22(h), loans to directors, executive officers
and stockholders who own more than 10% of a savings bank, and certain
affiliated entities of any of the foregoing, may not exceed, together with
all other outstanding loans to such person and affiliated entities, the
savings bank's loans-to-one borrower limit as established by federal law (as
discussed below). Section 22(h) also prohibits loans above amounts
prescribed by the appropriate federal banking agency to directors, executive
officers
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and stockholders who own more than 10% of a savings bank, and their
respective affiliates, unless such loan is approved in advance by a majority
of the board of directors of the savings bank. Any "interested" director
may not participate in the voting. The Federal Reserve has prescribed the
loan amount (which includes all other outstanding loans to such person), as
to which such prior board of director approval is required, as being the
greater of $25,000 or 5% of unimpaired capital and unimpaired surplus (up to
$500,000). Further, pursuant to Section 22(h) the Federal Reserve requires
that loans to directors, executive officers, and principal stockholders be
made on terms substantially the same as offered in comparable transactions
to other persons and not involve more than the normal risk of repayment or
present other unfavorable features.
Insurance of Deposit Accounts. The FDIC administers two separate
deposit insurance funds. The SAIF maintains a fund to insure the deposits of
institutions the deposits of which were insured by the Federal Savings and
Loan Insurance Corporation (the "FSLIC") prior to the enactment of FIRREA,
and the BIF maintains a fund to insure the deposits of institutions the
deposits of which were insured by the FDIC prior to the enactment of FIRREA.
Home is a member of the SAIF of the FDIC.
As a SAIF-insured institution, Home is subject to insurance assessments
imposed by the FDIC. Effective January 1, 1993, the FDIC replaced its
uniform assessment rate with a transitional risk-based assessment schedule
issued by the FDIC pursuant to the 1991 Banking Law, which imposes
assessments ranging from $0.23 to $0.31 per $100 of an institution's average
assessment base. The actual assessment to be paid by each SAIF member is
based on the institution's assessment risk classification, which is based on
whether the institution is considered "well capitalized," "adequately
capitalized" or "undercapitalized" (as such terms have been defined in
federal regulations), and whether such institution is considered by its
supervisory agency to be financially sound or to have supervisory concerns.
Under the 1991 Banking Law, the FDIC also may impose special assessments on
SAIF members to repay amounts borrowed from the U.S. Treasury or for any
other reason deemed necessary by the FDIC. As a result of the 1991 Banking
Law, the assessment rate on deposits could further increase over a 15-year
period.
Financial institutions such as Home which are members of the SAIF, are
required to pay higher deposit insurance premiums than financial
institutions which are members of the BIF, primarily commercial banks,
because the BIF has higher reserves than the SAIF and has been responsible
for fewer troubled institutions. The FDIC Board of Directors has recently
approved a new risk-based premium schedule that will reduce assessment rates
for commercial banks, will leave assessment rates for financial institutions
such as Home at current levels, and will increase the disparity between SAIF
and BIF assessments. Assessments for BIF members range from $0.04 to $0.31
per $100 of domestic deposits. In announcing this rule, the FDIC noted that
the premium differential may have adverse consequences for SAIF members,
including reduced earnings and an impaired ability to raise funds in the
capital markets. In addition, SAIF members, such as Home, could be placed
at a substantial competitive disadvantage to BIF members with respect to
pricing of loans and deposits and the ability to achieve lower operating
costs. Several alternatives to mitigate the effect of the BIF/SAIF premium
disparity have been suggested by the federal banking regulators, by members
of the United States Congress and by industry groups.
The Balanced Budget Act of 1995, which was passed by the United States
Congress but vetoed by the President for reasons unrelated to the SAIF
recapitalization, provided for a one-time assessment currently estimated to
be 0.85% of insured deposits that would fully capitalize the SAIF. It is
unknown whether this legislation will be enacted or that premiums for either
BIF or SAIF members will be adjusted in the future by the FDIC or by
legislative action. If a special assessment as described above were to be
required, it would result in a one-time charge to Home of up to $1.2 million
pre-tax, assuming the special assessment is based on deposits held at March
31, 1995. Management cannot predict whether the legislation will be
enacted, or, if enacted, the amount of any one-time fee or whether ongoing
SAIF premiums will be reduced to a level equal to that of BIF premiums.
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Home incurred deposit insurance premium expense of $295,000 and
$318,000 in fiscal 1995 and 1994, respectively. A significant increase in
SAIF insurance premiums or a significant one-time fee to recapitalize the
SAIF would likely have an adverse effect on the operating expenses and
results of operations of Home.
Community Reinvestment Act. Home, like other financial institutions,
is subject to the Community Reinvestment Act ("CRA"). A purpose of the
CRA is to encourage financial institutions to help meet the credit needs of
its entire community, including the needs of low- and moderate-income
neighborhoods. During Home's last compliance examination, Home received a
"satisfactory" rating with respect to CRA compliance. Home's rating with
respect to CRA compliance would be a factor to be considered by the Federal
Reserve and FDIC in considering applications submitted by Home to acquire
branches or to acquire or combine with other financial institutions and take
other actions and, if such rating was less than "satisfactory," could result
in the denial of such applications.
The federal banking regulatory agencies have issued a revision of the
CRA regulations, which became effective on January 1, 1996, to implement a
new evaluation system that rates institutions based on their actual
performance in meeting community credit needs. Under the regulations, a
savings bank will first be evaluated and rated under three categories: a
lending test, an investment test and a service test. For each of these
three tests, the savings bank will be given a rating of either
"outstanding," "high satisfactory," "low satisfactory," "needs to improve"
or "substantial non-compliance." A set of criteria for each rating has been
developed and is included in the regulation. If an institution disagrees
with a particular rating, the institution has the burden of rebutting the
presumption by clearly establishing that the quantative measures do not
accurately present its actual performance, or that demographics, competitive
conditions or economic or legal limitations peculiar to its service area
should be considered. The ratings received under the three tests will be
used to determine the overall composite CRA rating. The composite ratings
will be the same as those that are currently given: "outstanding,"
"satisfactory," "needs to improve" or "substantial non-compliance."
Capital Requirements Applicable to Home. The FDIC requires Home to
have a minimum leverage ratio of Tier I capital (principally consisting of
common stockholders' equity, noncumulative perpetual preferred stock and
minority interests in consolidated subsidiaries, less certain intangible and
goodwill items), to total assets of at least 3%; provided, however that all
institutions, other than those (i) receiving the highest rating during the
examination process and (ii) not anticipating or experiencing any
significant growth, are required to maintain a ratio of 1% or 2% above the
stated minimum, with an absolute minimum leverage ratio of not less than 4%.
The FDIC also requires Home to have a ratio of total capital to risk-
weighted assets, including certain off-balance sheet activities, such as
standby letters of credit, of at least 8%. At least half of the total
capital is required to be Tier I capital. The remainder (Tier II capital)
may consist of a limited amount of subordinated debt, certain hybrid capital
instruments, other debt securities, certain types of preferred stock and a
limited amount of general loan loss allowance.
An institution which fails to meet minimum capital requirements may be
subject to a capital directive which is enforceable in the same manner and
to the same extent as a final cease and desist order, and must submit a
capital plan within 60 days to the FDIC. If the leverage ratio falls to 2%
or less, the institution may be deemed to be operating in an unsafe or
unsound condition, allowing the FDIC to take various enforcement actions,
including possible termination of insurance or placement of the institution
in receivership.
The Administrator 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 March 31, 1996, Home complied with each of the capital requirements
of the FDIC and the Administrator. For a description of Home's required and
actual capital levels on March 31, 1996, see "HISTORICAL AND PRO FORMA
CAPITAL COMPLIANCE".
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The 1991 Banking Law requires each federal banking agency to revise its
risk-based capital standards within 18 months of enactment of the statute to
ensure that those standards take adequate account of interest rate risk,
concentration of credit risk, and the risk of nontraditional activities, as
well as reflect the actual performance and expected risk of loss on multi-
family mortgages. On September 14, 1993, the agencies issued a joint notice
of proposed rulemaking soliciting comment on proposed revisions to the risk-
based capital rules to take account of interest rate risk. The notice
proposes alternative approaches for determining the additional amount of
capital, if any, that a bank may be required to have as a result of interest
rate risk. The first approach would reduce a bank's risk-based capital
ratios by an amount based on its measured exposure to interest rate risk in
excess of a specified threshold. The second approach would assess the need
for additional capital on a case-by-case basis, considering both the level
of measured exposure and qualitative risk factors. In February 1994, the
federal banking agencies proposed amendments to their respective risk-based
capital requirements that would explicitly identify concentration of credit
risk and certain risks arising from nontraditional activities, and the
management of such risks, as important factors to consider in assessing an
institution's overall capital adequacy. The proposed amendments do not,
however, mandate any specific adjustments to the risk-based capital
calculations as a result of such factors. Home cannot assess at this point
the impact the proposal would have on its capital requirements.
In December 1994, the FDIC adopted a final rule changing its risk-based
capital rules to recognize the effect of bilateral netting agreements in
reducing the credit risk of two types of financial derivatives-interest
and exchange rate contracts. Under the rule, savings banks are permitted to
net positive and negative mark-to-market values of rate contracts with the
same counterparty, subject to legally enforceable bilateral netting
contracts that meet certain criteria. This represents a change from the
prior rules which recognized only a very limited form of netting. Home does
not anticipate that this rule will have a material effect upon its financial
condition or results of operations.
Loans to One Borrower. Home is subject to the Administrator's loans-to-
one borrower limits. Under these limits, no loans and extensions of credit
to any borrower outstanding at one time and not fully secured by readily
marketable collateral shall exceed 15% of the net worth of the savings bank.
Loans and extensions of credit fully secured by readily marketable
collateral may comprise an additional 10% of net worth. These limits also
authorize savings banks to make loans to one borrower, for any purpose, in
an amount not to exceed $500,000. A savings institution also is authorized
to make loans to one borrower to develop domestic residential housing units,
not to exceed the lesser of $30 million, or 30% of the savings institution's
net worth, provided that (i) the purchase price of each single-family
dwelling in the development does not exceed $500,000; (ii) the savings
institution is in compliance with its fully phased-in capital requirements;
(iii) the loans comply with applicable loan-to-value requirements; (iv) the
aggregate amount of loans made under this authority does not exceed 150% of
net worth; and (v) the institution's regulator issues an order permitting
the savings institution to use this higher limit. These limits also
authorize a savings bank to make loans-to-one borrower to finance the sale
of real property acquired in satisfaction of debts in an amount up to 50% of
net worth.
As of March 31, 1996, the largest aggregate amount of loans which Home
had to any one borrower was $764,000. Home had no loans outstanding which
management believes violate the applicable loans-to-one borrower limits.
Limitations on Rates Paid for Deposits. Regulations promulgated by the
FDIC pursuant to the 1991 Banking Law place limitations on the ability of
insured depository institutions to accept, renew or roll over deposits by
offering rates of interest which are significantly higher than the
prevailing rates of interest on deposits offered by other insured depository
institutions having the same type of charter in such depository
institution's normal market area. Under these regulations, "well
capitalized" depository institutions may accept, renew or roll such deposits
over without restriction, "adequately capitalized" depository institutions
may accept, renew or roll such deposits over with a waiver from the FDIC
(subject to certain restrictions on payments of rates) and
"undercapitalized" depository institutions may not accept, renew or roll
such deposits over. The definitions of "well capitalized," "adequately
capitalized" and "undercapitalized" are the
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same as the definitions adopted by the FDIC to implement the corrective
action provisions of the 1991 Banking Law. See "--Regulation of Home--
Impact of the 1991 Banking Law".
Federal Home Loan Bank System. The FHLB system provides a central
credit facility for member institutions. As a member of the FHLB of Atlanta,
Home is required to own capital stock in the FHLB of Atlanta in an amount at
least equal to the greater of 1% of the aggregate principal amount of its
unpaid residential mortgage loans, home purchase contracts and similar
obligations at the end of each calendar year, or 5% of its outstanding
advances (borrowings) from the FHLB of Atlanta. On March 31, 1996, Home was
in compliance with this requirement with an investment in FHLB of Atlanta
stock of $1.3 million.
Federal Reserve System. Federal Reserve regulations require savings
banks, not otherwise exempt from the regulations, to maintain reserves
against their transaction accounts (primarily negotiable order of withdrawal
accounts) and certain nonpersonal time deposits. The reserve requirements
are subject to adjustment by the Federal Reserve. As of March 31, 1996,
Home was in compliance with the applicable reserve requirements of the
Federal Reserve.
Restrictions on Acquisitions. Federal law generally provides that no
"person," acting directly or indirectly or through or in concert with one or
more other persons, may acquire "control," as that term is defined in FDIC
regulations, of a state savings bank without giving at least 60 days'
written notice to the FDIC and providing the FDIC an opportunity to
disapprove the proposed acquisition. Pursuant to regulations governing
acquisitions of control, control of an insured institution is conclusively
deemed to have been acquired, among other things, upon the acquisition of
more than 25% of any class of voting stock. In addition, control is
presumed to have been acquired, subject to rebuttal, upon the acquisition of
more than 10% of any class of voting stock. Such acquisitions of control
may be disapproved if it is determined, among other things, that (i) the
acquisition would substantially lessen competition; (ii) the financial
condition of the acquiring person might jeopardize the financial stability
of the savings bank or prejudice the interests of its depositors; or
(iii) the competency, experience or integrity of the acquiring person or the
proposed management personnel indicates that it would not be in the interest
of the depositors or the public to permit the acquisition of control by such
person.
For three years following completion of the Conversion, North Carolina
conversion regulations require the prior written approval of the
Administrator before any person may directly or indirectly offer to acquire
or acquire the beneficial ownership of more than 10% of any class of an
equity security of Home. If any person were to so acquire the beneficial
ownership of more than 10% of any class of any equity security without prior
written approval, the securities beneficially owned in excess of 10% would
not be counted as shares entitled to vote and would not be voted or counted
as voting shares in connection with any matter submitted to stockholders for
a vote. Approval is not required for (i) any offer with a view toward
public resale made exclusively to Home or its underwriters or the selling
group acting on its behalf or (ii) any offer to acquire or acquisition of
beneficial ownership of more than 10% of the common stock of Home by a
corporation whose ownership is or will be substantially the same as the
ownership of Home, provided that the offer or acquisition is made more than
one year following the consummation of the Conversion. The regulation
provides that within one year following the Conversion, the Administrator
would approve the acquisition of more than 10% of beneficial ownership only
to protect the safety and soundness of the institution. During the second
and third years after the Conversion, the Administrator may approve such an
acquisition upon a finding that (i) the acquisition is necessary to protect
the safety and soundness of the Holding Company and Home or the Boards of
Directors of the Holding Company and Home support the acquisition, (ii) the
acquiror is of good character and integrity and possesses satisfactory
managerial skills, and will be a source of financial strength to the Holding
Company and Home; and (iii) the public interests will not be adversely
affected.
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Liquidity. Home is subject to the Administrator's requirement that the
ratio of liquid assets to total assets equal at least 10%. The computation
of liquidity under North Carolina regulation allows the inclusion of
mortgage-backed securities and investments which, in the judgment of the
Administrator, have a readily marketable value, including investments with
maturities in excess of five years. At March 31, 1996, Home's liquidity
ratio was substantially in excess of the North Carolina regulations.
Additional Limitations on Activities. Recent FDIC law and regulations
generally provide that Home may not engage as principal in any type of
activity, or in any activity in an amount, not permitted for national banks,
or directly acquire or retain any equity investment of a type or in an
amount not permitted for national banks. The FDIC has authority to grant
exceptions from these prohibitions (other than with respect to non-service
corporation equity investments) if it determines no significant risk to the
insurance fund is posed by the amount of the investment or the activity to
be engaged in and if Home is and continues to be in compliance with fully
phased-in capital standards. National banks are generally not permitted to
hold equity investments other than shares of service corporations and
certain federal agency securities. Moreover, the activities in which service
corporations for savings banks are permitted to engage are limited to those
of service corporations for national banks.
Savings banks are also required to notify the FDIC at least 30 days
prior to the establishment or acquisition of any subsidiary, or at least 30
days prior to conducting any such new activity. Any such activities must be
conducted in accordance with the regulations and orders of the FDIC and the
Administrator. Savings banks are also generally prohibited from directly or
indirectly acquiring or retaining any corporate debt security that is not of
investment grade (generally referred to as "junk bonds").
Impact of the 1991 Banking Law. The 1991 Banking Law became effective
on December 19, 1991. Among other things, the 1991 Banking Law provided
increased funding for the BIF and provided for expanded regulation of
depository institutions and their affiliates, including bank holding
companies.
The 1991 Banking Law provided the federal banking agencies with broad
powers to take corrective action to resolve problems of insured depository
institutions. The extent of these powers will depend upon whether the
institutions in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," or "critically
undercapitalized." Under the FDIC regulations applicable to Home, an
institution is considered "well capitalized" if it has (i) a total risk-
based capital ratio of 10% or greater, (ii) a Tier I risk-based capital
ratio of 6% or greater, (iii) a leverage ratio of 5% or greater and (iv) is
not subject to any order or written directive to meet and maintain a
specific capital level for any capital measure. An "adequately capitalized"
institution is defined as one that has (i) a total risk-based capital ratio
of 8% or greater, (ii) a Tier I risk-based capital ratio of 4% or greater
and (iii) a leverage ratio of 4% or greater (or 3% or greater in the case of
an institution with the highest examination rating and which is not
experiencing or anticipating significant growth). An institution is
considered (A) "undercapitalized" if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier I risk-based capital ratio of less than
4% or (iii) a leverage ratio of less than 4% (or 3% and is not experiencing
or anticipating significant growth); (B) "significantly undercapitalized" if
the institution has (i) a total risk-based capital ratio of less than 6%,
(ii) a Tier I risk-based capital ratio of less than 3% or (iii) a leverage
ratio of less than 3% and (C) "critically undercapitalized" if the
institution has a ratio of tangible equity to total assets equal to or less
than 2%.
To facilitate the early identification of problems, the 1991 Banking
Law required the federal banking agencies to review and, under certain
circumstances, prescribe more stringent accounting and reporting
requirements than those required by generally accepted accounting
principles. The FDIC issued a final rule, effective July 2, 1993,
implementing those provisions.
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The 1991 Banking Law further requires the federal banking agencies to
develop regulations requiring disclosure of contingent assets and
liabilities and, to the extent feasible and practicable, supplemental
disclosure of the estimated fair market value of assets and liabilities. The
1991 Banking Law also requires annual examinations of all insured depository
institutions by the appropriate federal banking agency, with some exceptions
for small, well-capitalized institutions and state chartered institutions
examined by state regulators. Moreover, the 1991 Banking Law, as modified by
the Federal Housing Enterprises Financial Security and Soundness Act,
requires the federal banking agencies to set operational and managerial,
asset quality, earnings and stock valuation standards for insured depository
institutions and depository institution holding companies, as well as
compensation standards (but not dollar levels of compensation) for insured
depository institutions that prohibit excessive compensation, fees or
benefits to officers, directors, employees, and principal stockholders. In
July 1992, the federal banking agencies issued a joint advance notice of
proposed rulemaking soliciting comments on all aspects of the implementation
of these standards in accordance with the 1991 Banking Law, including
whether the compensation standards should apply to depository institution
holding companies. An interagency notice of proposed rulemaking was issued
in November 1993. However, sections of the Riegle Community Development and
Regulatory Improvement Act of 1994 will affect the nature and scope of the
proposed regulations, and eliminates the requirement that the regulations
apply to depository institution holding companies.
The foregoing necessarily is a general description of certain
provisions of the 1991 Banking Law and does not purport to be complete.
Interstate Banking. A bank or savings bank holding company and its
subsidiaries are currently prohibited from acquiring any voting shares of,
or interest in, any banks or savings banks located outside of the state in
which the operations of the savings bank holding company's subsidiaries are
located, unless the acquisition is specifically authorized by the statutes
of the state in which the target bank is located. However, in September
1994, Congress passed the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "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. North Carolina 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 in excess of five years. In
addition, no bank or saving 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 has 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. North Carolina has enacted legislation
permitting interstate branching transactions.
It is anticipated that the Interstate Banking Act will increase
competition within the market in which Home now operates, 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
North Carolina in reaction to the Interstate Banking Act or what impact such
legislation or the Interstate Banking Act might have upon Home.
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The Interstate Banking Act also modifies the controversial safety and
soundness provisions contained in Section 39 of the 1991 Banking Law which
required the banking regulatory agencies to promulgate regulations governing
such topics as internal controls, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation and fees and other
matters those agencies determine to be appropriate. The legislation exempts
bank holding companies from these provisions and requires the agencies to
prepare guidelines, as opposed to regulations, dealing with these areas. It
also gives more discretion to the banking regulatory agencies in prescribing
standards for banks' asset quality, earnings and stock valuation.
The Interstate Banking Act also expands current exemptions from the
requirement that banks be examined on a 12-month cycle. Exempted banks will
be inspected every 18 months. Other provisions address paperwork reduction
and regulatory improvements, small business and commercial real estate loan
securitization, truth-in-lending amendments regarding high cost mortgages,
strengthening of the independence of certain financial regulatory agencies,
money laundering, flood insurance reform and extension of certain statutes
of limitations.
Restrictions on Dividends and Other Capital Distributions. A North
Carolina-chartered stock savings bank may not declare or pay a cash dividend
on, or repurchase any of, its capital stock if the effect of such
transaction would be to reduce the net worth of the institution to an amount
which is less than the minimum amount required by applicable federal and
state regulations. In addition, a North Carolina-chartered stock savings
bank, for a period of five years after its conversion from mutual to stock
form, must obtain the written approval from the Administrator before
declaring or paying a cash dividend on its capital stock in an amount in
excess of one-half of the greater of (i) the institution's net income for
the most recent fiscal year end, or (ii) the average of the institution's
net income after dividends for the most recent fiscal year end and not more
than two of the immediately preceding fiscal year ends, if applicable.
Also, without the prior written approval of the Administrator, a North
Carolina-chartered stock savings bank, for a period of five years after its
conversion from mutual to stock form, may not repurchase any of its capital
stock. The Administrator will give approval to repurchase only upon a
showing that the proposed repurchase will not adversely affect the safety
and soundness of the institution. Under FDIC regulations, stock repurchases
may be made during the first year after the Conversion only after receipt of
FDIC approval.
In addition, Home is not permitted to declare or pay a cash dividend or
repurchase any of its capital stock if the effect thereof would be to cause
its net worth to be reduced below the amount required for the liquidation
account established in connection with Home's conversion from mutual to
stock ownership.
Restrictions on Benefit Plans. FDIC regulations provide that for a
period of one year from the date of the Conversion, Home may not implement
or adopt a stock option plan or restricted stock plan, other than a tax-
qualified plan or ESOP, unless: (1) the plans are fully disclosed in the
Conversion proxy soliciting and stock offering material, (2) all such plans
are approved by a majority of the Holding Company's stockholders prior to
implementation and no earlier than six months following the Conversion, (3)
for stock option plans, the exercise price must be at least equal to the
market price of the stock at the time of grant, (4) for restricted stock
plans, no stock issued in connection with the Conversion may be used to fund
the plan and (5) prior to implementing the plans, all such plans are
submitted for review and approval to the Regional Director of the FDIC.
The FDIC regulations provide that the FDIC will presume that excessive
compensation will result if stock based benefit plans fail to satisfy
percentage limitations on management stock-based benefit plans set forth in
the regulations of the OTS. Those regulations provide that (1) for stock
option plans, the total number of shares for which options may be granted
may not exceed 10% of the shares issued in the Conversion, (2) for
restricted stock plans, the shares issued may not exceed 3% of the shares
issued in the Conversion (4% for institutions with tangible capital of 10%
or greater after the Conversion), (3) the aggregate amount of stock
purchased by the ESOP shall not exceed 10% (8% for well-capitalized
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<PAGE>
institutions utilizing a 4% restricted stock plan), (4) no individual
employee may receive more than 25% of the available awards under any plan,
and (5) directors who are not employees may not receive more than 5%
individually or 30% in the aggregate of the awards under any plan. The
awards and grants to be made under the Holding Company's proposed MRP and
Stock Option Plan conform to these requirements.
Other North Carolina Regulation. As a North Carolina-chartered savings
bank, Home derives its authority from, and is regulated by, the
Administrator. The Administrator has the right to promulgate rules and
regulations necessary for the supervision and regulation of North Carolina
savings banks under his jurisdiction and for the protection of the public
investing in such institutions. The regulatory authority of the
Administrator includes, but is not limited to: the establishment of reserve
requirements; the regulation of the payment of dividends; the regulation of
stock repurchases, the regulation of incorporators, stockholders, directors,
officers and employees; the establishment of permitted types of withdrawable
accounts and types of contracts for savings programs, loans and investments;
and the regulation of the conduct and management of savings banks,
chartering and branching of institutions, mergers, conversions and conflicts
of interest. North Carolina law requires that Home maintain federal deposit
insurance as a condition of doing business.
The Administrator conducts regular examinations of North Carolina-
chartered savings banks. The purpose of such examinations is to assure that
institutions are being operated in compliance with applicable North Carolina
law and regulations and in a safe and sound manner. These examinations are
usually conducted on a joint basis with the FDIC. In addition, the
Administrator is required to conduct an examination of any institution when
he has good reason to believe that the standing and responsibility of the
institution is of doubtful character or when he otherwise deems it prudent.
The Administrator is empowered to order the revocation of the license of an
institution if he finds that it has violated or is in violation of any North
Carolina law or regulation and that revocation is necessary in order to
preserve the assets of the institution and protect the interests of its
depositors. The Administrator has the power to issue cease and desist orders
if any person or institution is engaging in, or has engaged in, any unsafe
or unsound practice or unfair and discriminatory practice in the conduct of
its business or in violation of any other law, rule or regulation.
A North Carolina-chartered savings bank must maintain net worth,
computed in accordance with the Administrator's requirements, of 5% of total
assets and liquidity of 10% of total assets, as discussed above.
Additionally, a North Carolina-chartered savings bank is required to
maintain general valuation allowances and specific loss reserves in the same
amounts as required by the FDIC.
Subject to limitation by the Administrator, North Carolina-chartered
savings banks may make any loan or investment or engage in any activity
which is permitted to federally chartered institutions. However, a North
Carolina-chartered savings bank cannot invest more than 15% of its total
assets in business, commercial, corporate and agricultural loans. In
addition to such lending authority, North Carolina-chartered savings banks
are authorized to invest funds, in excess of loan demand, in certain
statutorily permitted investments, including but not limited to (i)
obligations of the United States, or those guaranteed by it; (ii)
obligations of the State of North Carolina; (iii) bank demand or time
deposits; (iv) stock or obligations of the federal deposit insurance fund or
a FHLB; (v) savings accounts of any savings institution as approved by the
board of directors; and (vi) stock or obligations of any agency of the State
of North Carolina or of the United States or of any corporation doing
business in North Carolina whose principal business is to make education
loans.
North Carolina law provides a procedure by which savings institutions
may consolidate or merge, subject to approval of the Administrator. The
approval is conditioned upon findings by the Administrator that, among other
things, such merger or consolidation will promote the best interests of the
members or stockholders of the merging institutions. North Carolina law also
provides for simultaneous mergers and conversions and for supervisory
mergers conducted by the Administrator.
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<PAGE>
MANAGEMENT OF THE HOLDING COMPANY
The Board of Directors of the Holding Company currently consists of six
directors: C.A. Holbrook, Joel A. Huneycutt, Douglas P. Stokes, Greg E.
Underwood, Carl M. Hill and R. Ronald Swanner. Each of these persons is
also a director of Home, and biographical information with respect to each
is set forth under "MANAGEMENT OF HOME--Directors". The Holding Company's
Bylaws provide for staggered election of its directors, if and when the
number of directors equals at least nine, so that approximately one-third of
the directors are elected each year for three-year terms. Until the number
of directors reaches nine, directors of the Holding Company are elected for
one year terms, or until their successors are elected and qualified. Under
the Holding Company's Bylaws, no person over 75 years of age shall be
eligible for election or appointment to the Holding Company's Board of
Directors and no director may serve after the first annual meeting of
stockholders immediately following such person's reaching 75 years of age.
The executive officers of the Holding Company, each of whom is also
currently an executive officer of Home, and each of whom serves at the
discretion of the Board of Directors of the Holding Company, are as follows:
<TABLE>
<CAPTION>
Age at Position Held
Name September 30, 1995 With the Holding Company
---- ------------------ ------------------------
<S> <C> <C>
Carl M. Hill 63 President and Chief Excutive
Officer
R. Ronald Swanner 47 Executive Vice President and
Secretary
</TABLE>
Biographical information with respect to each of these officers is
set forth below under "MANAGEMENT OF HOME--Executive Officers". There are
no employees of the Holding Company other than the executive officers listed
above. No officer, director or employee of the Holding Company has received
remuneration from the Holding Company to date, and it is currently expected
that no compensation will be paid by the Holding Company after the
Conversion. Information concerning the principal occupations and employment
of, and compensation paid by Home to, the directors and executive officers
of the Holding Company is set forth under "MANAGEMENT OF HOME". See
"MANAGEMENT OF HOME--Employment Agreements" and "--Special Termination
Agreements" for a description of certain agreements expected to be entered
into with certain officers of the Holding Company and Home.
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MANAGEMENT OF HOME
Directors
The direction and control of Home, as a mutual North Carolina-chartered
savings bank, has been vested in its six-member Board of Directors elected
by the depositor and borrower members of Home. Upon conversion of Home to
capital stock form, each director of Home immediately prior to the
Conversion will continue to serve as a director of Home as a stock
institution. Home's proposed Bylaws, which would become effective after the
Conversion, provide for staggered elections of its directors, if and when
the number of directors equals at least nine, so that approximately one-
third of the directors are elected each year for three-year terms. Unless
and until the number of directors on the Home Board of Directors reaches
nine, directors will be elected for one-year terms, or until their
successors are elected and qualified. Under Home's Bylaws, no person over
70 years of age shall be eligible for election or appointment to the Home
Board of Directors and no director may serve after the first annual meeting
of stockholders immediately following such person's reaching 70 years of
age. Upon consummation of the Conversion, the Holding Company will own all
of the issued and outstanding shares of capital stock of Home, and the
Holding Company will elect the directors of Home. The Holding Company now
plans to nominate and re-elect all members of Home's existing board of
directors when their existing terms expire. The following table sets forth
certain information with respect to the persons who currently serve as
members of the Board of Directors of Home.
<TABLE>
<CAPTION>
Age on
September
30, Principal Occupation Term Director
Name 1995 During Last Five Years Expires Since
- ---- --------- ---------------------- ------- -------
<S> <C> <C> <C> <C>
Carl M. Hill 63 President and CEO, Home Savings 1996 1961
Caldwell A. Holbrook, Jr. 48 Partner, D.A. Holbrook & Sons, 1996 1985
General Contractors
Joel A. Huneycutt 53 President, Locust Lumber Company, 1996 1984
Inc.
Douglas Dwight Stokes 49 Owner and President, Stokes 1996 1988
Construction Company
R. Ronald Swanner 47 Executive Vice President, Home 1996 1981
Savings
Greg E. Underwood 32 CPA in private practice; Owner, 1996 1995
Carolina Oil Co. of Albemarle, Inc.
and Barefoot Oil Co. of Albemarle,
Inc.; Secretary/Treasurer
of Southeastern Floral Corp.
</TABLE>
Board Meetings and Committees
Home conducts its business through meetings of the Board of Directors
and through activities of its committees. During the last fiscal year ended
September 30, 1995, the Board of Directors held 12 meetings. All directors
attended
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<PAGE>
at least 75% of the total meetings of the Board of Directors during the year
ended September 30, 1995. The Board of Directors has four committees as
described below.
The Loan Committee is composed of Messrs. Stokes, Hill and Swanner.
This Committee reviews and approves or disapproves loans. The Loan
Committee meets once a week and met approximately 52 times during the fiscal
year ended September 30, 1995.
The Audit Committee is composed of Messrs. Stokes, Underwood and
Huneycutt and meets annually to review and obtain the annual audit report
and also meets on an as-needed basis. The Committee met one time during the
fiscal year ended September 30, 1995.
The Nominating Committee is composed of Messrs. Holbrook, Huneycutt and
Stokes. The Nominating Committee recommends individuals to be elected to
serve as directors of Home. The Nominating Committee generally meets on an
annual basis and met one time during the fiscal year ended September 30,
1995.
The Proxy Committee is composed of Messrs. Stokes, Holbrook and
Huneycutt. The Proxy Committee meets on an as needed basis and met one time
during the fiscal year ended September 30, 1995.
The Compensation Committee is composed of Messrs. Huneycutt, Holbrook
and Stokes. The Compensation Committee meets on an annual basis and met one
time during the fiscal year ended September 30, 1995.
Directors' Fees
For their service on the Home Board of Directors, members of the Board,
including Mr. Hill and Mr. Swanner, receive a retainer of $2,500 per year
and an additional $600 per month for each board meeting attended. Mr.
Stokes receives an additional $300 per month for his service on the Loan
Committee.
Deferred Compensation Agreements with Directors
1985 Retirement Payment Agreements. Mr. Hill and Mr. Swanner, as well
as two outside directors and two retired directors, participate in a
deferred compensation plan established in 1985 under which such directors,
or their designated beneficiaries, would be paid specified amounts over a
ten-year period beginning at age 65 (or in one case, age 70) in return for
the deferral of certain amounts of the director's fees over a five-year
period. If a director dies while serving as a director but before receiving
all of his benefits under the agreement, payments will be made to his
designated beneficiary, or if none, to his estate, unless the death is by
suicide within two years of the execution of the agreement.
As a condition of the agreement, each director has agreed not to engage
in activities in competition with Home and to provide consulting services to
Home during the period the retirement benefits are payable.
Messrs. Troy E. Alexander and Ellie F. Wilson, Jr., both retired
directors, are currently receiving monthly payments of $540 and $356,
respectively, under these agreements.
1995 Retirement Payment Agreements. In 1995, Home entered into
additional deferred compensation arrangements with all of its directors.
Under the agreements, Home will pay each director a specified amount per
month for a period of ten years upon the director's attainment of age 65 (or
in Mr. Hill's case, beginning in 2000), in return for the deferral of
certain amounts of the director's fees over a five-year period.
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<PAGE>
If a director dies while serving as a director but before receiving all
of his benefits under the agreement, payments will be made to his designated
beneficiary, or if none, to his estate, unless the death is by suicide
within two years of the execution of the agreement (in which case the
deferred fees will be returned, with interest). If a director becomes
disabled while serving as a director, but prior to attaining age 65 (October
1, 2000 for Mr. Hill), Home will pay the same benefits that would be payable
in the event of the director's death. If a director terminates his service
to Home for reasons other than death or disability, he or his beneficiary
shall be entitled to receive at age 65 (or October 1, 2000 for Mr. Hill) or
his prior death only the vested portion of the benefit due under the
agreement. Vesting occurs according to a schedule contained in the
agreement. If any director's termination of service shall occur after a
change in control of Home, the director shall be 100% vested in the
retirement benefits.
As a condition of the agreement, each director has agreed not to engage
in activities in competition with Home and to provide consulting services to
Home during the period that the retirement benefits are payable.
Directors Retirement Plan
In 1995, Home adopted a retirement plan for directors after determining
that such a plan would help it attract and retain qualified directors.
Under the plan all directors will be paid $1,000 per month over a ten-year
period beginning after the director attains 70 years of age (the "Normal
Retirement Date"). If a director dies while serving as a director but
before receiving all of his benefits under the plan, payments will be made
to his designated beneficiary in lump sum or installments at Home's option,
unless the death is by suicide within two years of the execution of the
agreement. If a director becomes disabled while serving as a director, but
prior to his Normal Retirement Date, Home will pay the benefits due under
the plan, either in installments over the ten-year period or in a lump sum
payment. If a director terminates his service to Home before his Normal
Retirement Date for reasons other than death or disability, he or his
beneficiary shall be entitled at the Normal Retirement Date or his prior
death to receive only the vested portion of the benefits due under the plan.
Vesting occurs according to a schedule contained in the agreement. If any
director's termination of service shall occur after a change in control of
Home, the director shall be 100% vested in the retirement benefits.
As a condition of the agreement, each director has agreed not to engage
in activities in competition with Home and to provide consulting services to
Home during the period the retirement benefits are payable.
Home has purchased life insurance on the lives of its directors to fund
its obligations under the deferred compensation and directors' retirement
plan agreements described above. Total expense related to the above-
described agreements was approximately $94,000 and $148,000 for the six-
month period ended March 31, 1996 and for the fiscal year ended September
30, 1995, respectively. Home's accrued liability for obligations under the
plans amounted to $548,000 at March 31, 1996.
Existing members of the Board of Directors may also receive additional
benefits following the Conversion. See "--Proposed Management Recognition
Plan" and "--Proposed Stock Option Plan."
Executive Officers
Home's executive officers are Carl M. Hill, President and Chief
Executive Officer, and R. Ronald Swanner, Executive Vice President.
Mr. Hill has been employed by Home since 1957 and was named President
in 1974.
Mr. Swanner joined Home in 1974. He has served as Executive Vice
President since 1980.
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<PAGE>
Executive Compensation
The following table sets forth for the fiscal year ended September 30,
1995 certain information as to the cash compensation received by the
President and Executive Vice President of Home. No other executive officer
of Home had cash compensation during the year ended September 30, 1995 that
exceeded $100,000 for services rendered in all capacities to Home.
<TABLE>
<CAPTION>
Other Annual
Name and Compensation All Other
Principal Position Salary Bonus ($)/(1)/ Compensation
------------------ -------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Carl M. Hill $138,411 $7,591 - - - $9,250/(2)/
President, CEO and Director
R. Ronald Swanner $ 91,887 $5,694 - - - $9,250/(3)/
Executive Vice President
</TABLE>
(1) Under the "Other Annual Compensation" category, prequisities for the
fiscal year ended September 30, 1995 did not exceed the lesser of
$50,000 or 10% of salary and bonus as reported for either Mr. Hill or
Mr. Swanner.
(2) Directors' fees received by Mr. Hill. No amount was contributed to
Home's 401(k) profit sharing plan for Mr. Hill during fiscal year 1995
because such plan was not established until January 1, 1996. As of
March 31, 1996, Home had contributed $1,199 to the 401(k) profit
sharing plan for Mr. Hill.
(3) Directors' fees received by Mr. Swanner. No amount was contributed to
Home's 401(k) profit sharing plan for Mr. Swanner during fiscal year
1995 because such plan was not established until January 1, 1996. As
of March 31, 1996, Home had contributed $781 to the 401(k) profit
sharing plan for Mr. Swanner .
Supplemental Income Agreements
1985 Agreements. Home entered into Supplemental Income Agreements with
Mr. Hill and Mr. Swanner on October 1, 1985. The agreements provide that
Home will pay Mr. Hill $1,200 per month for a continuous period of 216
months, and Mr. Swanner $861 per month for a continuous period of 180
months. Mr. Hill's benefits will commence on the later of his 62nd birthday
or his actual retirement. Mr. Swanner's benefits will commence on the first
day of the month following his 65th birthday. If the executive dies while
employed by Home but before receiving any or all of the payments due under
the agreement, the remaining payments will be made to his designated
beneficiary, or, if none, to his estate. If the executive becomes disabled
prior to his retirement from Home, Home will pay him the benefits due under
the agreement. The plan also provides for an early retirement benefit upon
retirement with 30 years of service with Home.
As a condition of the agreements, Mr. Hill and Mr. Swanner must be
available to provide consulting services to Home during the period the
retirement payments are payable and must not engage in activities in Stanly
County, North Carolina in competition with Home.
1995 Agreements. In September 1995, Home also entered into
Supplemental Income Agreements with Mr. Hill and Mr. Swanner. Under the
agreements, Home will pay Mr. Hill $25,000 annually and Mr. Swanner $15,000
annually for a period of fifteen years upon the executive's attainment of
age 65 or actual retirement, if later.
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<PAGE>
If the executive dies while employed by Home but before receiving all
of his benefits under the agreement, payments will be made to his designated
beneficiary, or if none, to his estate, unless the death is by suicide
within two years of the execution of the agreement. If the executive
becomes disabled while employed by Home, but prior to attaining age 65, Home
will pay the same benefits that would be payable in the event of the
executive's death, either in installments over the fifteen-year period or in
a lump sum payment. If the executive terminates his service to Home for
reasons other than death or disability, he or his beneficiary shall be
entitled to receive at age 65 or his prior death only the vested portion of
the benefits due under the agreement. Vesting occurs according to a
schedule contained in the agreement. If the executive's termination of
service shall occur after a change in control of Home, the executive shall
be 100% vested in the retirement benefits.
As a condition of the agreement, each executive has agreed not to
engage in activities in competition with Home in Albemarle, North Carolina,
and to provide consulting services to Home during the period that the
retirement benefits are payable.
Home has purchased life insurance on the lives of Mr. Hill and Mr.
Swanner to fund its obligations under the agreements described above. Total
expense related to those agreements was approximately $17,000 and $231,000
for the six-month period ending March 31, 1996 and for the fiscal year ended
September 30, 1995, respectively, and Home's accrued liability for plan
obligations amounted to $418,000 at March 31, 1996.
Retirement Plan
Home maintains a non-contributory defined benefit pension plan
("Pension Plan") for the benefit of all of its employees who have completed
one year of service and who are at least 21 years of age. Under the Pension
Plan, Home annually contributes an actuarially determined amount to provide
a benefit for each participant at retirement.
Participants are fully vested in amounts contributed to the Pension
Plan on their behalf by Home after completing five years of service.
Benefits under the plan are payable in the event of the participant's
retirement, death, disability or termination of employment.
Normal retirement age under the Pension Plan is the later of (a) age 65
or (b) the fifth anniversary of the date an employee first became a
participant in the Pension Plan ("Normal Retirement Age"). Subject to
certain restrictions on maximum benefits required by federal law, upon
reaching Normal Retirement Age, each participant will receive a retirement
benefit in the form of a straight life annuity, determined pursuant to a
formula which takes into consideration a participant's "final average
compensation," years of service with Home and the participant's expected
benefits from Social Security. In general, for purposes of the Pension
Plan, a participant's "final average compensation" is defined as his average
annual compensation for those five consecutive years in the last ten
calendar years immediately preceding Normal Retirement Age that produce the
highest average. The plan also offers early retirement to participants who
have completed fifteen years of service and who are at least fifty-five
years of age.
The following table shows the retirement benefit payable for a range of
compensation and years of service for a person who retires at Normal
Retirement Age. These are hypothetical benefits based upon the plan's
normal benefit formula.
91
<PAGE>
<TABLE>
<CAPTION>
Earnings Credited for Years of Service at Normal Retirement
Retirement Benefits
15 20 25 30 35
-- -- -- -- --
<S> <C> <C> <C> <C> <C>
$ 25,000............... $ 6,998 $ 9,330 $11,663 $11,745 $ 11,828
$ 50,000............... $16,560 $22,080 $27,600 $28,620 $ 29,640
$ 75,000............... $26,123 $31,830 $43,538 $45,495 $ 47,453
$100,000............... $35,685 $47,580 $59,475 $62,370 $ 65,265
$125,000............... $45,248 $60,330 $75,413 $79,245 $ 83,078
$150,000............... $54,810 $73,080 $91,350 $96,120 $100,890
</TABLE>
The benefits listed above are annual amounts and are based on the assumption
that the participant is age 65. As of September 30, 1995, Carl M. Hill and
R. Ronald Swanner had 38 and 21 years, respectively, of service under the
Pension Plan.
401(k) Profit Sharing Plan
In January 1996, Home established a contributory savings plan for its
employees, which meets the requirements of Section 401(k) of the Code. All
employees who have completed twelve months of service may elect to
contribute a percentage of their compensation to the plan each year, subject
to certain maximums imposed by federal law. Home will match 50% of each
participant's contribution, up to a maximum employer contribution of 3% of
the participant's compensation. For purposes of the 401(k) plan,
compensation means a participant's compensation received from the employer
as reported on Form W-2.
Participants are fully vested in amounts they contribute to the plan.
Participants are fully vested in amounts contributed to the plan on their
behalf by Home as employer matching contributions after six years of service
as follows: 1 year, 0%; 2 years, 20%; 3 years, 40%; 4 years, 60%; 5 years,
80%; 6 or more years, 100%.
Benefits under the plan are payable in the event of the participant's
retirement, death, disability or termination of employment. Normal
retirement age under the plan is 65 years of age. The total amount
contributed by Home to the 401(k) plan for the six-month period ended March
31, 1996 and for the fiscal year ended September 30, 1995 was $7,800 and $0,
respectively.
Other Benefits
Home provides its employees with group medical, life and accidental
death and dismemberment insurance benefits. Employees are also provided
with vacation, holiday and sick leave.
The Board of Directors may, in its absolute discretion, award a bonus
to employees based on each employee's then-current salary. The bonus is
first applied to each employee's 401(k) plan account to the extent allowable
by law. Any excess amount is paid directly to the employees.
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<PAGE>
Employment Agreements
In connection with the Conversion, Home will enter into employment
agreements with Carl M. Hill and R. Ronald Swanner in order to establish
their duties and compensation and to provide for their continued employment
with Home. The agreements will provide for an initial annual base salary of
$157,320, for Mr. Hill and $101,160 for Mr. Swanner. The agreements provide
for an initial term of employment of three years. Commencing on the first
anniversary date and continuing on each anniversary date thereafter,
following a performance evaluation of the employee, each agreement may be
extended for an additional year. Each agreement provides that base salary
shall be reviewed by the Board of Directors not less often than annually.
In addition, the employment agreements provide for discretionary bonuses and
participation in all other pension, profit-sharing or retirement plans
maintained by Home or by the Holding Company for employees of Home, as well
as fringe benefits normally associated with such employee's office,
including the use of a company car. The employment agreements provide that
they may be terminated by Home for cause, as defined in the agreement, and
that they may otherwise be terminated by Home (subject to vested rights) or
by the employee. In the event of a change in control (as defined below),
the terms of each agreement shall be automatically extended for three years
from the date of the change of control, and the employee's base salary shall
be increased at least 6% annually.
The employment agreements provide that the nature of the employee's
compensation, duties or benefits may not be diminished following a change in
control of Home or the Holding Company. For purposes of the employment
agreements, a change in control generally will occur if (i) after the
effective date of the employment agreement, any "person" (as such term is
defined in Sections 3(a)(9) and 13(d)(3) of the Exchange Act) directly or
indirectly, acquires beneficial ownership of voting stock, or acquires
irrevocable proxies or any combination of voting stock and irrevocable
proxies, representing 25% or more of any class of voting securities of
either the Holding Company or Home, or acquires in any manner control of the
election of a majority of the directors of either the Holding Company or
Home, (ii) either the Holding Company or Home consolidates or merges with or
into another corporation, association or entity, or is otherwise
reorganized, where neither the Holding Company nor Home is the surviving
corporation in such transaction, or (iii) all or substantially all of the
assets of either the Holding Company or Home are sold or otherwise
transferred to, or are acquired by, any other entity or group.
The employment agreements could have the effect of making it less
likely that Home or the Holding Company will be acquired by another entity.
See "ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME--The
Holding Company--Anti-Takeover Effect of Employment Agreements, Severance
Plan and Benefit Plans".
Severance Plan
In connection with the Conversion, Home's Board of Directors plans to
adopt a Severance Plan for the benefit of its employees. The Severance Plan
provides that in the event there is a "change in control" of Home or the
Holding Company (as defined in the Severance Plan) and (i) Home or any
successor of Home terminates the employment of any full time employee of
Home in connection with, or within 24 months after the change in control,
other than for "cause" (as defined in the Severance Plan), or (ii) an
employee terminates his or her employment with Home or any successor
following a decrease in the level of such employee's annual base salary rate
or a transfer of such employee to a location outside of Stanly County, North
Carolina, as applicable, within 24 months after a change in control, all
non-officer employees shall be entitled to a severance benefit equal to the
greater of (a) an amount equal to two weeks' salary at the employee's
existing salary rate multiplied times the employee's number of complete
years of service as a Home employee, subject to a maximum payment equal to
the employee's annual salary rate at the time of termination; or (b) the
amount of one month's salary at the employee's salary rate at the time of
termination. The Severance Plan provides that under the circumstances
described above, officers of Home shall be entitled to receive a severance
benefit equal to the greater of (a) the amount of one year's salary at the
officer's annual salary rate at the time of termination or (b) an amount
equal to two weeks' salary at the officer's existing salary rate multiplied
times the officer's number of complete years of service
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<PAGE>
to Home. Officers and employees of Home who, at the time of a "change in
control," are parties to employment agreements are not covered by the
Severance Plan.
The Severance Plan could have the effect of making it less likely that
Home or the Holding Company will be acquired by another entity. See
"ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME--The
Holding Company--Anti-Takeover Effect of Employment Agreements, Severance
Plan and Benefit Plans".
Employee Stock Ownership Plan
Home has established the ESOP for its eligible employees. The ESOP
will become effective upon the Conversion. Employees with one year of
service with Home and who have attained age 21 are eligible to participate.
As part of the Conversion, the ESOP intends to borrow funds from the Holding
Company and use the funds to purchase up to 8% of the shares of Common Stock
to be issued in the Conversion, estimated to be between 231,200 and 312,800
shares assuming the issuance of between 2,890,000 and 3,910,000 shares. In
the event that the number of shares issued in the Conversion exceeds the
number of shares of Conversion stock issued at the maximum of the Valuation
Range (i.e., more than 3,910,000 shares) (the "Maximum Shares"), the ESOP
will have the first priority right to purchase any shares issued exceeding
the Maximum Shares up to an aggregate of 8% of the total number of shares
offered and sold in the Conversion. In the alternative, the ESOP may
purchase some or all of the shares covered by its subscription after the
Conversion in the open market or the Holding Company may issue authorized
but unissued shares.
Collateral for the Holding Company's loan to the ESOP will be the
Common Stock purchased by the ESOP. It is expected that the loan will be
repaid principally from Home's discretionary contributions to the ESOP
within 10 years. Dividends, if any, paid on shares held by the ESOP may also
be used to reduce the loan. It is anticipated that the interest rate for
the loan will be a commercially reasonable rate at the time of the loan
inception. The loan will not be guaranteed by Home. Shares purchased by
the ESOP and pledged as security for the loan will be held in a suspense
account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account
in an amount proportional to the repayment of the ESOP loan will be
allocated among ESOP participants on the basis of relative compensation in
the year of allocation. Benefits will vest in full upon five years of
service with credit given for years of service prior to the Conversion.
Benefits are payable upon the participant's retirement, death, disability or
termination of service. Home's contributions to the ESOP are not fixed, so
benefits payable and corresponding expenses under the ESOP cannot be
determined, although benefits payable and corresponding expenses have been
estimated in preparing the pro forma computations set forth in this
Prospectus. See "PRO FORMA DATA".
In connection with the establishment of the ESOP, Home will establish a
committee of the Board of Directors to administer the ESOP. Trustees for
the ESOP will also be appointed prior to the Conversion. The ESOP committee
may instruct the trustees regarding investment of funds contributed to the
ESOP. Participating employees shall instruct the trustees as to the voting
of all shares allocated to their respective accounts and held in the ESOP.
The unallocated shares held in the suspense account, and all allocated
shares for which voting instructions are not received, will be voted by the
trustees in their discretion subject to the provisions of ERISA.
The ESOP may be considered an "anti-takeover" device because the ESOP
may become the owner of a sufficient percentage of the total outstanding
Common Stock of the Holding Company so that the vote or decision whether to
tender shares of the ESOP may be used as a defense in a contested takeover.
See "ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME--The
Holding Company--Anti-Takeover Effect of Employment Agreements, Severance
Plan and Benefit Plans".
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Proposed Management Recognition Plan
The Boards of Directors of Home and the Holding Company intend to adopt
a MRP within one year of the Conversion, subject to approval by the
stockholders of the Holding Company at a stockholders meeting to be held no
sooner than six months after the Conversion. The MRP serves as a means of
providing the directors, officers and certain employees of Home with an
ownership interest in the Holding Company in a manner designed to encourage
such persons to continue their service to Home. All directors and officers
and certain employees of Home would receive benefits under the MRP. Upon
stockholder approval of the MRP, the Holding Company expects to either
provide for (i) the issuance of authorized but unissued shares of Common
Stock or (ii) the purchase in the open market of an amount of Common Stock,
in either instance equal to 4% of the shares of Common Stock issued in the
Conversion. To the extent that the MRP acquires authorized but unissued
shares after the Conversion, the interests of existing stockholders will be
diluted. Shares issued under the MRP will be issued at no cost to
recipients. Assuming the issuance of 3,910,000 shares in the Conversion and
receipt of regulatory and stockholder approval, 156,400 shares would be
issued pursuant to the MRP and allocated as follows:
<TABLE>
<CAPTION>
Estimated
Number Percentage of
of Restricted Total
Shares Restricted
Recipient Title to be Granted Shares
- --------- ----- --------------- -------------
<S> <C> <C> <C>
Caldwell A. Holbrook, Jr. Director 7,820 5%
Joel A. Huneycutt Director 7,820 5
Douglas Dwight Stokes Director 7,820 5
Greg E. Underwood Director 7,820 5
Carl M. Hill President and 39,100 25
CEO, Director
R. Ronald Swanner Executive Vice 31,280 20
President and
Director
Other Employees 54,740 35
------- ---
Total 156,400 100%
======= ===
</TABLE>
After the grant of shares under the MRP, recipients will be entitled to
vote such shares and receive all dividends and cash distributions with
respect thereto. The MRP provides that 20% of the shares granted would vest
and become nonforfeitable on the first anniversary of the date of the grant
under the MRP and 20% would vest and become nonforfeitable on each
subsequent anniversary date, so that the shares would be completely vested
at the end of five years after the date of grant. Grants of Common Stock
under the MRP would immediately vest upon the disability or death of a
recipient. Until shares become vested, the right to vote such shares and
the right to receive dividends thereon may not be sold, assigned,
transferred, exchanged, pledged or otherwise encumbered. If the recipient
of shares under the MRP terminates his service to Home (other than by death
or disability) prior to the time shares become vested, unvested shares would
be forfeited to the MRP and would be subject to future allocations to
others. The MRP provides that the MRP cannot be terminated upon the change
in control of the Holding Company or Home unless the acquiror provides for
an equivalent benefit. For this purpose, "change in control" has the same
meaning as is set forth in the employment
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agreements of the president and the executive vice president and the special
termination agreements. See "--Employment Agreements" and "--Special
Termination Agreements".
If the MRP is approved by the stockholders and by the applicable
regulatory authorities, Home expects to recognize a compensation expense for
the MRP awards in the amount of the fair market value of the Common Stock
granted. The expense would be recognized pro rata over the years during
which shares vest. The recipients of stock grants would be required to
recognize ordinary income equal to the fair market value of the stock. The
stock grants would be made in recognition of the recipients' past service to
Home and as an incentive for their continued performance.
The Boards of Directors of Home and the Holding Company may decide to
wait to submit the MRP to the stockholders of the Holding Company until a
date no earlier than one year following the Conversion. In this event, the
MRP may provide for a vesting schedule of less than five years and
accelerated vesting in the event of retirement or a change in control, in
addition to death or disability.
Proposed Stock Option Plan
The Boards of Directors of Home and the Holding Company intend to adopt
a Stock Option Plan within one year of the Conversion, subject to approval
by the stockholders of the Holding Company at a stockholders meeting to be
held no sooner than six months after the Conversion.
Upon stockholder approval of Stock Option Plan, Common Stock in an
aggregate amount equal to 3% of the shares issued in the Conversion would be
reserved for issuance by the Holding Company to non-employee directors of
Home upon the exercise of the stock options granted to them, and Common
Stock in an aggregate amount equal to 7% of the shares of Common Stock
issued in the Conversion would be reserved for issuance by the Holding
Company to employees and officers of Home upon exercise of options granted
to them. Assuming the issuance of between 2,890,000 and 3,910,000 shares in
the Conversion, an aggregate of between 86,700 and 117,300 shares would be
reserved for issuance to non-employee directors under the Stock Option Plan
and an aggregate of between 202,300 and 273,700 shares would be reserved for
issuance to officers of Home. In lieu of issuing reserved unissued shares
upon the exercise of options, the Holding Company may elect to purchase
shares in the open market to fund exercises of options.
Assuming the Stock Option Plan is approved by the stockholders of the
Holding Company and the applicable regulatory agencies, the Stock Option
Plan would be administered by a committee of the Holding Company's Board of
Directors (the "Stock Option Plan Committee"). Members of the Stock Option
Plan Committee are also expected to serve as trustees of the Stock Option
Plan Trust to be established as a part of the Stock Option Plan (the
"Trust"). The trustees of the Trust will be responsible for holding and
investing all funds contributed to the Trust. Any dividends paid on the
Common Stock to be held by the Trust will be returned to the Company.
Options granted under the Stock Option Plan would have an option exercise
price of not less than the fair market value of the Common Stock on the
effective date the options are granted. Options granted under the Stock
Option Plan would have a term of ten years, would not be transferable except
upon death and would continue to be exercisable upon retirement, death or
disability. Options granted under the Stock Option Plan would have a
vesting schedule which would provide that 20% of the options granted would
vest and become nonforfeitable on the first anniversary of the effective
date of the option grant and 20% would vest and become nonforfeitable on
each subsequent anniversary date, so that the options would be completely
vested at the end of five years after the effective date of the option
grant. Options would become 100% vested upon death or disability. The Stock
Option Plan provides that it cannot be terminated upon the "change in
control" of the Holding Company or Home (as defined in the Stock Option
Plan) unless the acquiror provides for an equivalent benefit.
Options granted to employees under the Stock Option Plan may be
"incentive stock options" which are designed to result in beneficial tax
treatment to the employee but no tax deduction to the Holding Company or
Home. The holder
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<PAGE>
of an incentive stock option generally is not taxed for federal income tax
purposes on either the grant or the exercise of the option. However, the
optionee must include in his or her federal alternative minimum tax income
any excess (the "Bargain Element") of the acquired common stock's fair
market value at the time of exercise over the exercise price paid by the
optionee. Furthermore, if the optionee sells, exchanges, gives or otherwise
disposes of such common stock (other than in certain types of transactions)
either within two years after the option was granted or within one year
after the option was exercised (an "Early Disposition"), the optionee
generally must recognize the Bargain Element as compensation income for
regular federal income tax purposes. Any gain realized on the disposition
in excess of the Bargain Element is subject to recognition under the usual
rules applying to dispositions of property. If a taxable sale or exchange
is made after such holding periods are satisfied, the difference between the
exercise price and the amount realized upon the disposition of the common
stock generally will constitute a capital gain or loss for tax purposes. If
an optionee exercises an incentive stock option and delivers shares of
common stock as payment for part or all of the exercise price of the stock
purchased ("Payment Stock"), no gain or loss generally will be recognized
with respect to the Payment Stock; provided, however, if the Payment Stock
was acquired pursuant to the exercise of an incentive stock option, the
optionee will be subject to recognizing as compensation income the Bargain
Element on the Payment Stock as an Early Disposition if the exchange for the
new shares occurs prior to the expiration of the holding periods for the
Payment Stock. The Holding Company generally would not recognize gain or
loss or be entitled to a deduction upon either the grant of an incentive
stock option or the optionee's exercise of an incentive stock option.
However, if there is an Early Disposition, the Holding Company generally
would be entitled to deduct the Bargain Element as compensation paid the
optionee.
Options granted to directors under the Stock Option Plan would be "non-
qualified stock options." In general, the holder of a non-qualified stock
option will recognize compensation income equal to the amount by which the
fair market value of the common stock received on the date of exercise
exceeds the sum of the exercise price and any amount paid for the non-
qualified stock option. If the optionee elects to pay the exercise price in
whole or in part with common stock, the optionee generally will not
recognize any gain or loss on the common stock surrendered in payment of the
exercise price. The Holding Company would not recognize any income or be
entitled to claim any deduction upon the grant of a non-qualified stock
option. At the time the optionee is required to recognize compensation
income upon the exercise of the non-qualified stock option, the Holding
Company would recognize a compensation expense and be entitled to claim a
deduction in the amount equal to such compensation income.
Assuming the issuance of 3,910,000 shares in the Conversion and
approval of the Stock Option Plan by the stockholders of the Holding Company
and the applicable regulatory agencies, the Board of Directors of the
Holding Company and the Board of Directors of Home intend to grant options
under the Stock Option Plan to the persons and in the amounts set forth
below:
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<PAGE>
<TABLE>
<CAPTION>
Estimated Number Percentage of Total
of Shares Shares
Recipient Title Subject to Option Subject to Options
- --------- ----- ----------------- ------------------
<S> <C> <C> <C>
Caldwell A. Holbrook, Jr. Director 19,550 5%
Joel A. Huneycutt Director 19,550 5
Douglas Dwight Stokes Director 19,550 5
Greg E. Underwood Director 19,500 5
Carl M. Hill President, CEO 97,750 25
Director
R. Ronald Swanner Executive Vice 78,200 20
President and
Director
Other Officers 136,850 35
------- --
Total 391,000 100%
======= ===
</TABLE>
If the Stock Option Plan is approved by the stockholders of the Holding
Company and the applicable regulatory agencies, the options granted to
employees and directors pursuant to the Stock Option Plan would be issued in
recognition of the recipients' past service to Home and as an incentive for
their continued performance. No cash consideration will be paid for the
options.
The Boards of Directors of Home and the Holding Company may decide to
wait to submit the Stock Option Plan to the stockholders of the Holding
Company until a date no earlier than one year following the Conversion. In
this event, the Stock Option Plan may provide for a vesting schedule of less
than five years and accelerated vesting in the event of retirement or a
change in control, in addition to death and disability.
Certain Indebtedness and Transactions of Management
Home makes loans to executive officers and directors of Home in
the ordinary course of its business. These loans are made on the same
terms, including interest rates and collateral, as those then prevailing for
comparable transactions with nonaffiliated persons, and do not involve more
than the normal risk of collectibility or present any other unfavorable
features. Applicable regulations prohibit Home from making loans to
executive officers and directors of Home on terms more favorable than could
be obtained by persons not affiliated with Home. Home's policy concerning
loans to executive officers and directors complies with such regulations.
The aggregate unpaid principal balance of loans to directors and officers
and their affiliates outstanding at March 31, 1996, totals approximately
$1.0 million and represents 2.0% of pro forma stockholders' equity at March
31, 1996, assuming the sale of 3,400,000 shares of Common Stock.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Holding Company
The Holding Company is authorized to issue 20,000,000 shares of Common
Stock and 5,000,000 shares of preferred stock. Neither the authorized
Common Stock nor the authorized preferred stock has any par value.
Common Stock. The Holding Company's Common Stock will represent
nonwithdrawable capital, will not be an account of an insurable type, and
will not be insured by the FDIC or any other governmental entity. Upon
payment of the purchase price for the Common Stock, all such stock will be
duly authorized, validly issued, fully paid, and nonassessable.
Dividends. The holders of the Holding Company's Common Stock will be
entitled to receive and share ratably in such dividends on Common Stock as
may be declared by the Board of Directors of the Holding Company out of
funds legally available therefor, subject to applicable statutory and
regulatory restrictions. The ability of the Holding Company to pay
dividends may be dependent on the receipt of dividends from Home. See
"DIVIDEND POLICY", "SUPERVISION AND REGULATION--Regulation of Home--
Restrictions on Dividends and Other Capital Distributions" and "TAXATION".
Stock Repurchases. The shares of Common Stock do not have any
redemption provisions. The Holding Company may not, for a period of at
least one year from the effective date of the Conversion, without the
approval of the Administrator, repurchase any of its capital stock. Such
approval shall be given only upon a showing that the proposed repurchase
will not adversely affect the safety and soundness of Home. Stock
repurchases are also subject to North Carolina regulations regarding capital
distributions.
Voting Rights. Upon Conversion, the holders of Common Stock, as the
only class of capital stock of the Holding Company then outstanding, will
possess exclusive voting rights with respect to the Holding Company. Such
holders will have the right to elect the Holding Company's Board of
Directors and to act on such other matters as are required to be presented
to stockholders under North Carolina law or as are otherwise presented to
them. Each holder of Common Stock will be entitled to one vote per share.
The holders of Common Stock will have no right to vote their shares
cumulatively in the election of directors. As a result, the holders of a
majority of the shares of Common Stock will have the ability to elect all of
the directors on the Holding Company's Board of Directors.
Liquidation Rights. In the event of a liquidation, dissolution or
winding up of the Holding Company, the holders of Common Stock of the
Holding Company would be entitled to ratably receive, after payment of or
making of adequate provisions for, all debts and liabilities of the Holding
Company and after the rights, if any, of preferred stockholders of the
Holding Company, all remaining assets of the Holding Company available for
distribution.
Preemptive Rights. Holders of the Common Stock of the Holding Company
will not be entitled to preemptive rights with respect to any shares which
may be issued by the Holding Company.
Shares Owned by Directors and Executive Officers. All shares of Common
Stock issued in the Conversion to directors and executive officers of the
Holding Company and Home will contain a restriction providing that such
shares may not be sold without the written permission of the Administrator
for a period of one year following the date of purchase, except in the event
of death of the director or the executive officer.
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<PAGE>
Preferred Stock. None of the 5,000,000 shares of the Holding Company's
authorized preferred stock have been issued and none will be issued in the
Conversion. Such stock may be issued in one or more series with such
rights, preferences and designations as the Board of Directors of the
Holding Company may from time to time determine subject to applicable law
and regulations. If and when such shares are issued, holders of such shares
may have certain preferences, powers and rights (including voting rights)
senior to the rights of the holders of the Common Stock. The Board of
Directors can (without stockholder approval) issue preferred stock with
voting and conversion rights which could, among other things, adversely
affect the voting power of the holders of the Common Stock and assist
management in impeding an unfriendly takeover or attempted change in control
of the Holding Company that some stockholders may consider to be in their
best interests but to which management is opposed. See "ANTI-TAKEOVER
PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME--The Holding Company--
Restrictions in Articles of Incorporation and Bylaws". The Holding Company
has no current plans to issue preferred stock.
Restrictions on Acquisition. Acquisitions of the Holding Company and
acquisitions of the capital stock of the Holding Company are restricted by
provisions in the Articles of Incorporation and Bylaws of the Holding
Company and by various federal and state laws and regulations. See "ANTI-
TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME--The Holding
Company--Restrictions in Articles of Incorporation and Bylaws" and "--
Regulatory Restrictions".
Home
Common Stock. After consummation of the Conversion, Home will be
authorized to issue 100,000 shares of common stock, no par value ("Home
Common Stock"). The Home Common Stock will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be
insured by the FDIC or any other governmental entity.
Dividends. The payment of dividends by Home is subject to limitations
which are imposed by North Carolina law and regulations. See "DIVIDEND
POLICY" and "SUPERVISION AND REGULATION--Regulation of Home--Restrictions
on Dividends and Other Capital Distributions". In addition, federal income
tax law considerations may affect the ability of Home to pay dividends and
make other capital distributions. See "TAXATION". The holders of Home
Common Stock will be entitled to receive and share ratably in such dividends
on the Home Common Stock as may be declared by the Board of Directors of
Home out of funds legally available therefor, subject to applicable
statutory and regulatory restrictions.
Voting Rights. As a mutual North Carolina-chartered savings bank, Home
currently has no stockholders, and voting rights in Home are currently held
by Home's members (depositors and borrowers). Members elect Home's Board
of Directors and vote on such other matters as are required to be presented
to them under North Carolina law.
Upon Conversion, the Holding Company, as sole stockholder of Home, will
possess the exclusive voting rights with respect to the Home Common Stock,
will elect Home's Board of Directors and will act on such other matters as
are required to be presented to stockholders under North Carolina law or as
are otherwise presented to stockholders by Home's Board of Directors. The
holders of Home Common Stock will have no right to vote their shares
cumulatively in the election of directors of Home.
Liquidation Rights. After the Conversion, in the event of any
liquidation, dissolution or winding up of Home, the Holding Company, as
holder of all of Home's outstanding capital stock, would be entitled to
receive all remaining assets of Home available for distribution, after
payment of or making of adequate provisions for, all debts and liabilities
of Home (including all deposit accounts and accrued interest thereon) and
after distribution of the balance in the liquidation account established in
connection with the Conversion to Eligible Account Holders and Supplemental
Eligible Account Holders. See "THE CONVERSION--Effects of Conversion--
Liquidation Rights".
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<PAGE>
Preemptive Rights. Holders of the Home Common Stock will not be
entitled to preemptive rights with respect to any shares which may be issued
by Home.
Restrictions on Acquisition. Acquisitions of Home and acquisitions of
its capital stock are restricted by various federal and state laws and
regulations. See "ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY
AND HOME--Home".
ANTI-TAKEOVER PROVISIONS AFFECTING THE HOLDING COMPANY AND HOME
The Holding Company
Restrictions in 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 Home
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 six, 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, so long as the number of
directors is at least nine, 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 (so long as the number of directors is nine or
more) 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
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<PAGE>
Company to gain majority representation on the Board of Directors. The
Board of Directors currently does not have staggered terms but should the
number of directors be increased to nine or more, the staggered election
provision of the Holding Company's Articles of Incorporation will become
operative.
Cumulative Voting. The Articles of Incorporation do not provide for
cumulative voting for any purpose. 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 Bylaws of the Holding Company provide that
special meetings of stockholders of the Holding Company may be called by the
Chairman of the Board, the Chief Executive Officer, the President, or by the
Board of Directors. If a special meeting is not called by such persons or
entities, stockholder proposals cannot be presented to the stockholders for
action until the next annual meeting.
Capital Stock. The Articles of Incorporation of the Holding Company
authorize the issuance of 20,000,000 shares of common stock and 5,000,000
shares of preferred stock. The shares of common stock and preferred stock
authorized in addition to the number of shares of Common Stock to be issued
pursuant to the Conversion were authorized to provide the Holding Company's
Board of Directors with flexibility to issue additional shares, without
further stockholder approval, for proper corporate purposes, including
financing, acquisitions, stock dividends, stock splits, director and
employee stock options, grants of restricted stock to directors and
employees and other appropriate purposes. However, issuance of additional
authorized shares may also have the effect of impeding or deterring 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, dividend rights, and liquidation preferences, which could
adversely affect the voting power of the holders of the Common Stock and
discourage an attempt to acquire control of the Holding Company. The Board
of Directors does not intend to issue any preferred stock, except on terms
which it deems to be in the best interests of the Holding Company and its
stockholders. However, the Board of Directors has the power, to the extent
consistent with its fiduciary duties, to issue preferred stock to persons
friendly to management or otherwise in order to impede attempts by third
parties to acquire voting control of the Holding Company and to impede other
transactions not favored by management. The Board of Directors currently
has no plans for the issuance of additional shares of Common Stock (except
for such shares as may be necessary to fund the MRP and the Stock Option
Plan) or of shares of preferred stock.
Director Nominations. The Bylaws 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 50 days (but not more than 90 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
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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 75% 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 75% 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.
Anti-Takeover Effect of Employment Agreements, Severance Plan and
Benefit Plans. The existence of the ESOP may tend to discourage takeover
attempts because employees participating under the ESOP and the trustees of
the ESOP will effectively control the voting of the large block of shares
held by the ESOP. See "MANAGEMENT OF HOME--Employee Stock Ownership
Plan". Also, if approved by the stockholders of the Holding Company at a
meeting of stockholders following the Conversion, the MRP and the Stock
Option Plan will provide for the ownership of additional shares of Common
Stock by the employees and the directors of Home. See "MANAGEMENT OF HOME -
- Proposed Management Recognition Plan" and "--Proposed Stock Option Plan".
If (i) the MRP and the Stock Option Plan are approved, (ii) all of the
options issuable under the Stock Option Plan are granted and exercised,
(iii) all of the shares issuable under the MRP are awarded and issued, and
(iv) the Holding Company did not issue any additional shares of its Common
Stock, the shares held by directors and executive officers and their
affiliates as a group, including shares expected to be purchased outright in
the Conversion and shares expected to be purchased by the ESOP, would give
such persons effective control over as much as 19.50% or 18.88% of the
Common Stock issued and outstanding at the minimum and maximum of the
Valuation Range, respectively. Because the Holding Company's Articles of
Incorporation require the affirmative vote of 75% of the outstanding shares
entitled to vote in order to approve certain mergers, consolidations or
other business combinations, the officers and directors, as a group, could
effectively block such transactions. See "--The Holding Company--
Supermajority Voting Provisions".
In connection with the Conversion, Home will enterinto employment
agreements with its president and executive vice president and intends to
adopt a severance plan which would benefit all of Home's employees in the
event of a change in control. The employment agreements and severance plan
all contain provisions providing for certain monetary payments and/or
restrictions on termination in the event of a change in control which may
tend to discourage mergers, consolidations, acquisitions or other
transactions that would result in such a change of control of the Holding
Company or Home.
Regulatory Restrictions. Applicable North Carolina regulations provide
that for a period of three years following the Conversion, the prior written
approval of the Administrator will be required before any person may,
directly or indirectly, acquire beneficial ownership of or make any offer to
acquire any stock or other equity security of the Holding Company if, after
the acquisition or consummation of such offer, such person would be the
beneficial owner of more than 10% of such class of stock or other class of
equity security of the Holding Company. If any person were to so acquire
the beneficial ownership of more than 10% of any class of any equity
security without prior written approval, the securities beneficially owned
in excess of 10% would not be counted as shares entitled to vote and would
not be voted or counted as voting shares in connection with any matter
submitted to stockholders for a vote. Approval is not required for (i) any
offer with a view toward public resale made exclusively to the Holding
Company or its underwriters or the selling group acting on its behalf or
(ii) any offer to acquire or acquisition of beneficial ownership of more
than 10% of
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the common stock of the Holding Company by a corporation whose ownership is
or will be substantially the same as the ownership of the Holding Company,
provided that the offer or acquisition is made more than one year following
the consummation of the Conversion. The regulation provides that within one
year following the Conversion, the Administrator would approve the
acquisition of more than 10% of beneficial ownership only to protect the
safety and soundness of the institution. During the second and third years
after the Conversion, the Administrator may approve such an acquisition upon
a finding that (i) the acquisition is necessary to protect the safety and
soundness of the Holding Company and Home or the Board of Directors of the
Holding Company and Home support the acquisition and (ii) the acquiror is of
good character and integrity and possesses satisfactory managerial skills,
the acquiror will be a source of financial strength to the Holding Company
and Home and the public interests will not be adversely affected.
The Change in Bank Control Act, together with North Carolina
regulations, require that the consent of the Administrator and Federal
Reserve be obtained prior to any person or company acquiring "control" of a
North Carolina-chartered savings bank or a North Carolina-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
Home 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 "SUPERVISION AND REGULATION--Regulation of the
Holding Company".
Home
Upon consummation of the Conversion, Home will become a wholly-owned
subsidiary of the Holding Company, and, consequently, restrictions on the
acquisition of Home would have a more limited effect than if Home's common
stock were held directly by the stockholders purchasing in the Conversion.
However, restrictions on the acquisition of Home may discourage takeover
attempts of the Holding Company in order to gain immediate control of Home.
Regulatory Restrictions. The Administrator and the Federal Reserve
have conditionally approved the Holding Company's acquisition of all of the
stock of Home issued in the Conversion. For three years following
completion of a conversion, North Carolina conversion regulations require
the prior written approval of the Administrator before any person may
directly or indirectly offer to acquire or acquire the beneficial ownership
of more than 10% of any class of an equity security of a converting state
savings bank such as Home. If any person were to so acquire the beneficial
ownership of more than 10% of any class of any equity security without prior
written approval, the securities beneficially owned in excess of 10% would
not be counted as shares entitled to vote and would not be voted or counted
as voting shares in connection with any matter submitted to stockholders for
a vote. Approval is not required for (i) any offer with view toward public
resale made exclusively to Home or its underwriters or the selling group
acting on its behalf or (ii) any offer to acquire or acquisition of
beneficial ownership of more than 10% of the common stock of Home by a
corporation whose ownership is or will be substantially the same as the
ownership of Home, provided that the offer or acquisition is made more than
one year following the consummation of the Conversion. Similarly, Federal
Reserve approval is required before any person or entity may acquire
"control" of Home. See "--The Holding Company--Regulatory Restrictions".
Board of Directors. The amended Articles of Incorporation of Home upon
consummation of the Conversion will provide that the number of directors may
be no less than five, with the exact number to be fixed from time to time by
the Board of Directors. The initial number of directors will be six. This
provision has the effect of enabling the Board of Directors to elect
directors friendly to management in the event of a non-negotiated takeover
attempt. Home's Bylaws
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also provide for staggered elections of directors so long as the total
number of directors is at least nine. These provisions are designed to make
it more difficult for a person seeking to acquire control of Home to gain
majority representation on the Board of Directors in a relatively short
period of time. Home believes these provisions to be important to
continuity in the composition and policies of its Board of Directors. The
Board of Directors of Home currently does not have staggered terms but
should the number of directors be increased to nine or more, the staggered
election provision of Home's amended Articles of Incorporation will become
operative.
CERTAIN PROVISIONS OF THE CHARTERS AND BYLAWS OF
THE HOLDING COMPANY AND HOME
Limitations of Liability. The Charters of both the Holding Company and
Home provide that the directors of each shall not be personally liable to
the corporation they serve or its stockholders for money damages for breach
of any duty as a director to the fullest extent permitted by North Carolina
law. The North Carolina Business Corporation Act authorizes such
provisions, but provides that they shall not be effective with respect to
(i) acts or omissions of directors that the director knew or believed at the
time were clearly in conflict with the best interests of the corporation,
(ii) transactions from which the director derived an improper personal
benefit, (iii) liability for certain unlawful distributions of corporation
assets, and (iv) with respect to acts or omissions that occurred prior to
the effectiveness of the provisions. Home's mutual charter contains a
similar provision.
Indemnification. The Bylaws of both the Holding Company and Home
provide that any person who serves as a director, officer, employee or agent
of the corporation shall have a right to be indemnified by the corporation
they serve to the full extent allowed by applicable law for liability or
litigation expense arising out of activities in such capacities. Both the
Bylaws and the North Carolina Business Corporation Act provide that there
shall be no indemnification for liability or expense arising out of
activities which were known or believed by such persons at the time of such
activities to be clearly in conflict with the best interests of the
corporation. Home's mutual bylaws contain a similar provision.
THE CONVERSION
THE BOARD OF DIRECTORS OF HOME HAS ADOPTED AND THE ADMINISTRATOR HAS
APPROVED COMPLETION OF THE TRANSACTIONS DESCRIBED IN THE PLAN OF CONVERSION
SUBJECT TO APPROVAL BY THE MEMBERS OF HOME AND TO THE SATISFACTION OF
CERTAIN OTHER CONDITIONS. APPROVAL BY THE ADMINISTRATOR DOES NOT CONSTITUTE
A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE
ADMINISTRATOR.
General
Home's Board of Directors has been studying Home's strategic options
for several years. As a result of its analysis of the existing regulatory
environment, the competition faced by Home and other factors, Home's Board
of Directors decided to pursue the possibility of combining with another
financial institution with greater assets and similar management
philosophies in a "merger-conversion" transaction. On May 27, 1993, Home
entered into an Agreement with BB&T pursuant to which Home would convert to
the stock form of ownership and simultaneously be merged with Branch Banking
and Trust Company. Home and BB&T jointly terminated the Agreement on June
20, 1994. Home has continued to evaluate its strategic options since that
time and the existing management of Home now believes that it will be in the
best interest of Home to remain an independent financial institution. As a
result, on May 14, 1996, Home's Board of Directors adopted a Plan of
Conversion. The Holding Company and Home intend to pursue the business
strategy described in this Prospectus with the goal of enhancing stockholder
value after the Conversion over the long term. Neither
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the Holding Company nor Home has any existing plan to consider any possible
business combination, and neither company has any agreement or understanding
with respect to any possible business combination.
The Board of Directors' adoption of the Plan of Conversion is subject
to approval by the members of Home and receipt of required regulatory
approvals. Pursuant to the Plan of Conversion, Home will be converted from
a North Carolina-chartered mutual savings bank to a North Carolina-chartered
stock savings bank and will become a wholly-owned subsidiary of the Holding
Company. The Holding Company will issue the Common Stock to be sold in the
Conversion and will use that portion of the net proceeds thereof which it
does not retain to purchase the capital stock of Home. By letter dated
________________, 1996, the Administrator approved the Plan of Conversion,
subject to approval by the members of Home and satisfaction of certain other
conditions. The Special Meeting will be held on ___________, 1996 for the
purpose of considering approval of the Plan of Conversion.
Consummation of the Conversion is contingent also upon receipt of the
approvals of the Federal Reserve and the Administrator for the Holding
Company to acquire Home. Those approvals have been received. The
Conversion cannot be consummated until the expiration of the Bank Merger Act
of 1956 waiting period which began to run upon approval by the Federal
Reserve of the Holding Company's application and expires _____________,
1996. Finally, consummation of the Conversion is contingent upon receipt
from the FDIC of a final non-objection letter with respect to the
transaction. The FDIC has issued a conditional notification that it does
not intend to object to the Conversion.
The following is a summary of all material provisions of the Plan of
Conversion. It is qualified in its entirety by the provisions of the Plan
of Conversion, which contains a more detailed description of the terms of
the Conversion. The Plan of Conversion is attached as Attachment I to Home's
Proxy Statement for the Special Meeting which has been delivered to all
members of Home. The Plan of Conversion can also be obtained by written
request from Home. See "ADDITIONAL INFORMATION".
Purposes of Conversion
Home, as a mutual savings bank, now has no stockholders and no
authority to issue capital stock. By converting to the stock form of
organization, Home will be structured in the form used by most commercial
banks, other business entities and a substantial number of savings
institutions. Conversion to a North Carolina-chartered capital stock
savings bank and the formation of a holding company offers a number of
advantages which may be important to the future and performance of Home,
including (i) a larger capital base for Home's operations, (ii) enhanced
future access to capital markets and (iii) an opportunity for depositors of
Home to become stockholders of the Holding Company.
After completion of the Conversion, the unissued common and preferred
stock authorized by the Holding Company's Articles of Incorporation will
permit the Holding Company, subject to market conditions, to raise
additional equity capital through further sales of securities. Following
the Conversion, the Holding Company will also be able to use stock-related
incentive programs to attract, retain and provide incentives for qualified
directors and executive and other personnel of the Holding Company and Home.
See "MANAGEMENT OF HOME--Employee Stock Ownership Plan", "--Proposed
Management Recognition Plan" and "--Proposed Stock Option Plan".
Formation of the Holding Company will provide greater flexibility than
Home would otherwise have to diversify its business activities through
existing or newly formed subsidiaries, or through acquisitions of, or
mergers with, both mutual and stock institutions, as well as other
companies. However, there are no current arrangements, understandings or
agreements regarding any such business combinations.
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Effects of Conversion
General. Each person with a deposit account in Home has pro rata
rights, based upon the balance in his or her account, in the net worth of
Home upon liquidation. However, this right is tied to the depositor's
account and has no tangible market value separate from such deposit account.
Further, Home's depositors can realize value with respect to their interests
only in the unlikely event that Home is liquidated and has a positive net
worth. In such an event, the depositors of record at that time, as owners,
would share pro rata in any residual surplus after other claims, including
those with respect to the deposit accounts of depositors, are paid.
Upon Home's conversion to stock form, its Articles of Incorporation
will be amended to authorize the issuance of permanent nonwithdrawable
capital stock to represent the ownership of Home, 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 entity. Certificates
will be issued to evidence ownership of the capital stock. All of the
outstanding capital stock of Home 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 Home.
Voting Rights. Under Home's current Articles of Incorporation and
Bylaws, deposit account holders and borrowers have voting rights with
respect to certain matters relating to Home, including the election of
directors. After the Conversion, (i) neither deposit account holders nor
borrowers will have voting rights with respect to Home and will therefore
not be able to elect directors of Home or control its affairs; (ii) voting
rights with respect to Home will be vested in the Holding Company as the
sole stockholder of Home; and (iii) voting rights with respect to the
Holding Company will be vested in the Holding Company's stockholders. Each
purchaser of Common Stock will be entitled to vote on any matters to be
considered by the Holding Company's stockholders. For a description of the
voting rights of the holders of Common Stock, see "DESCRIPTION OF CAPITAL
STOCK".
Deposit Accounts and Loans. The account balances, interest rates and
other terms of deposit accounts at Home and the existing deposit insurance
coverage of such accounts will not be affected by the Conversion (except to
the extent that a depositor directs Home to withdraw funds to pay for his or
her Common Stock). Furthermore, the Conversion will not affect any loan
account, the balances, interest rates, maturities or other terms of these
accounts, or the obligations of borrowers under their individual contractual
arrangements with Home.
Continuity. Home will continue without interruption, during and after
completion of the Conversion, to provide its services to depositors and
borrowers pursuant to existing policies and will maintain its offices
operated by the existing management and employees of Home.
Liquidation Rights. In the unlikely event of a complete liquidation of
Home, either before or after Conversion, account holders would have claims
for the amount of their deposit accounts, including accrued interest, and
would receive the protection of deposit insurance up to applicable limits.
In addition to deposit insurance coverage, depositor liquidation rights
before and after Conversion would be as follows:
Liquidation Rights Prior to the Conversion. Prior to the Conversion,
in the event of a complete liquidation of Home, each holder of a deposit
account in Home would receive such holder's pro rata share of any assets of
Home remaining after payment of claims of all creditors (including the
claims of all depositors to the withdrawal value of their accounts,
including accrued interest). Such holder's pro rata share of such remaining
assets, if any, would be in the same proportion of such assets as the value
of such holder's deposit account was to the total value of all deposit
accounts in Home at the time of liquidation.
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Liquidation Rights After the Conversion. As required by North Carolina
conversion regulations, the Plan of Conversion provides that, upon
completion of the Conversion, a memorandum account called a "Liquidation
Account" will be established for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders. The amount of the Liquidation
Account will be equal to the net worth of Home as of the date of its latest
statement of financial condition contained in the final prospectus relating
to the sale of shares of Common Stock in the Conversion. Under applicable
regulations, Home will not be permitted to pay dividends on, or repurchase
any of, its capital stock if its net worth would thereby be reduced below
the aggregate amount then required for the Liquidation Account. See
"DIVIDEND POLICY" and SUPERVISION AND REGULATION--Regulation of
Home--Restrictions on Dividends and Other Capital Distributions". After the
Conversion, Eligible Account Holders and Supplemental Eligible Account
Holders will be entitled, in the event of a liquidation of Home, to receive
liquidating distributions of any assets remaining after payment of all
creditors' claims (including the claims of all depositors to the withdrawal
values of their deposit accounts, including accrued interest), before any
distributions are made on Home's capital stock, equal to their proportionate
interests at that time in the Liquidation Account.
Each Eligible Account Holder and Supplemental Eligible Account Holder
will have an initial interest ("subaccount balance") in the Liquidation
Account for each deposit account held as of December 31, 1994 (the
Eligibility Record Date) or as of _________________, 1996 (the Supplemental
Eligibility Record Date), respectively. Each initial subaccount balance
will be the amount determined by multiplying the total opening balance in
the Liquidation Account by the Qualifying Deposit (a deposit of at least $50
as of the Eligibility Record Date or Supplemental Eligibility Record Date,
as applicable) of such deposit account divided by the total of all
Qualifying Deposits on that date. If the amount in the deposit account on
any subsequent annual closing date of Home is less than the balance in such
deposit account on any other annual closing date or the balance in such an
account on the Eligibility Record Date or Supplemental Eligibility Record
Date, as the case may be, this interest in the Liquidation Account will be
reduced by an amount proportionate to any such reduction, and will not
thereafter be increased despite any subsequent increase in the related
deposit account. An Eligible Account Holder's or Supplemental Eligible
Account Holder's interest in the Liquidation Account will cease to exist if
the deposit account is closed. The Liquidation Account will never increase
and will be correspondingly reduced as the interests in the Liquidation
Account are reduced or cease to exist. In the event of a liquidation, any
assets remaining after the above liquidation rights of Eligible Account
Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Holding Company, as sole stockholder of Home.
A merger, consolidation, sale of bulk assets or similar combination or
transaction with another FDIC-insured depository institution, whether or not
Home is the surviving institution, would not be viewed as a complete
liquidation for purposes of distribution of the Liquidation Account. In any
such transaction, the Liquidation Account would be assumed by the surviving
institution to the full extent authorized by regulations of the
Administrator as then in effect.
Offering of Common Stock
As part of the Conversion, the Holding Company is making the
Subscription Offering of Common Stock in the priorities and to the persons
described below under "--Subscription Offering". In addition, any shares
which remain unsubscribed for in the Subscription Offering will be offered
in the Community Offering to members of the general public, with first
priority being given to natural persons and trusts of natural persons
residing or located in Stanly County, North Carolina, and with second
priority being given to natural persons or trusts of natural persons
residing or located in the Surrounding Counties, including IRAs, Keogh
accounts and similar retirement accounts established for the benefit of
natural persons who are residents of Stanly County and the Surrounding
Counties. See "--Community Offering". If necessary, all shares of Common
Stock not purchased in the Subscription Offering and Community Offering, if
any, may be offered for sale to the general public through a syndicate of
registered broker-dealers as selected dealers to be managed by Trident
Securities. See "--Syndicated Community Offering". The Plan of Conversion
requires that the aggregate dollar amount of the Common Stock sold equal not
less than the minimum nor more than the maximum of the Valuation
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Range which is established in connection with the Conversion; provided,
however, with the consent of the Administrator and the FDIC the aggregate
dollar amount of the Common Stock sold may be increased to as much as 15%
above the maximum of the Valuation Range, without a resolicitation of
subscribers or any right to cancel subscriptions, in order to reflect
changes in market and financial conditions following commencement of the
Subscription Offering. See "--Purchase Price of Common Stock and Number of
Shares Offered". If the Syndicated Community Offering is not feasible or
successful and Common Stock having an aggregate value of at least the
minimum of the Valuation Range is not subscribed for in the Subscription and
Community Offerings, the Holding Company will consult with the Administrator
to determine an appropriate alternative method of selling all shares of
Common Stock required to be offered in the Conversion and not subscribed for
in the Offerings. The same per share price ($10.00) will be paid by
purchasers in the Subscription, Community and Syndicated Community
Offerings.
The Subscription Offering will expire at the Expiration Time, which is
12:00 noon, local time, on ____________, 1996, unless, with the approval of
the Administrator, the offering period is extended by the Holding Company
and Home. The Community Offering, if any, may commence at any time
following commencement of the Subscription Offering and will terminate at
any time thereafter at the discretion of Home without prior notice, but not
later than _____________, 1996, unless extended with the approval of the
Administrator. The Syndicated Community Offering, if any, or other sale of
all shares not subscribed for in the Subscription and Community Offerings,
will be made as soon as practicable following the Expiration Time. The sale
of the Common Stock must, under the North Carolina conversion regulations,
be completed within 45 days after the Expiration Time unless such period is
extended with the approval of the Administrator. In the event such an
extension is approved, subscribers would be given the opportunity to
increase (subject to maximum purchase limitations), decrease (subject to
minimum purchase limitations) or rescind their subscriptions. In such
event, substantial additional printing, legal and accounting expenses may be
incurred in completing the Conversion. The Offerings may not be extended
beyond ____________, 1998.
The commencement and completion of any required Community or Syndicated
Community Offering will be subject to market conditions and other factors
beyond the Holding Company's control. Accordingly, no assurance can be
given that any required Community or Syndicated Community Offering or other
sale of Common Stock will be commenced immediately after the Expiration Time
or as to the length of time that will be required to complete the sale of
all shares of Common Stock offered, and significant changes may occur in the
estimated pro forma market value of the Common Stock, together with
corresponding changes in the offering price, the number of shares being
offered, and the net proceeds realized from the sale of the Common Stock.
The Plan of Conversion requires that the Conversion be completed within 24
months after the date of approval of the Plan of Conversion by Home's
members.
Subscription Offering
In accordance with North Carolina conversion regulations, non-
transferable Subscription Rights have been granted under the Plan of
Conversion to the following persons in the following order of priority: (i)
Home's Eligible Account Holders, who are depositors as of December 31, 1994
who had aggregate deposits at the close of business on such date of at least
$50 ("Qualifying Deposits"); (ii) the ESOP; (iii) Home's Supplemental
Eligible Account Holders, who are depositors as of _________________, 1996
who had Qualifying Deposits on such date; (iv) Home's Other Members, who are
depositor and borrower members as of ________________, 1996, the voting
record date for the Special Meeting, who are not Eligible Account Holders or
Supplemental Eligible Account Holders; and (v) directors, officers and
employees of Home who are not Eligible Account Holders, Supplemental
Eligible Account Holders or Other Members, subject to the limitations
described herein. All subscriptions received will be subject to the
availability of Common Stock after satisfaction of subscriptions of all
persons having prior rights in the Subscription Offering, and to the maximum
purchase limitations and other terms and conditions set forth in the Plan of
Conversion and described below.
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In order to ensure proper identification of Subscription Rights, it is
the responsibility of subscribers in the Subscription Offering to provide
correct account verification information on the Stock Order Form.
Eligible Account Holders. Each Eligible Account Holder has been
granted, without payment therefor, non-transferable Subscription Rights to
purchase Common Stock up to the maximum purchase limitation described in
"--Minimum and Maximum Purchase Limitations". Subscription rights of
Eligible Account Holders are superior to all other Subscription Rights
granted in the Conversion except that Subscription Rights of Eligible
Account Holders are subordinate to the prior rights of the ESOP to purchase
shares in excess of the Maximum Shares. See "MANAGEMENT OF HOME--Employee
Stock Ownership Plan". If Eligible Account Holders subscribe for more shares
of Common Stock than are available for purchase, the shares offered will
first be allocated among the subscribing Eligible Account Holders so as to
enable each subscribing Eligible Account Holder to the extent possible, to
purchase the number of shares necessary to make his or her total allocation
of Common Stock equal to the lesser of 100 shares of Common Stock or the
number of shares subscribed for by such Eligible Account Holder. Any shares
remaining after such allocation will be allocated among the subscribing
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that each such Eligible Account Holder's Qualifying Deposits
bears to the total of the Qualifying Deposits of all such Eligible Account
Holders.
ESOP. The ESOP has been granted, without payment therefor,
Subscription Rights to purchase a number of shares of Common Stock equal to
8% of the aggregate number of shares issued in the Conversion. The ESOP is
expected to purchase 8% of the number of shares to be issued in the
Conversion. In the event that the number of shares issued in the
Conversion exceeds the Maximum Shares, the ESOP has the first priority right
to purchase any shares exceeding the Maximum Shares up to an aggregate of 8%
of the total number of shares offered and sold in the Conversion. See
"MANAGEMENT OF HOME--Employee Stock Ownership Plan".
Supplemental Eligible Account Holders. To the extent that shares
remain available for purchase after satisfaction of subscriptions of
Eligible Account Holders and the ESOP, each Supplemental Eligible Account
Holder has been granted, without payment therefor, non-transferable
Subscription Rights to purchase Common Stock up to the maximum purchase
limitation described in "--Minimum and Maximum Purchase Limitations". If
Supplemental Eligible Account Holders subscribe for more shares of Common
Stock than are available for purchase, the shares offered will first be
allocated among the subscribing Supplemental Eligible Account Holders so as
to enable each subscribing Supplemental Eligible Account Holder to the
extent possible, to purchase the number of shares necessary to make his or
her total allocation of Common Stock equal to the lesser of 100 shares of
Common Stock or the number of shares subscribed for by such Supplemental
Eligible Account Holder. Any shares remaining after such allocation will be
allocated among the subscribing Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied in the proportion that each such
Supplemental Eligible Account Holder's Qualifying Deposits bears to the
total of the Qualifying Deposits of all such Supplemental Eligible Account
Holders.
Other Members. To the extent that shares remain available for purchase
after satisfaction of subscriptions of Eligible Account Holders, the ESOP
and Supplemental Eligible Account Holders, Other Members of Home as of
______________________, (the voting record date for the Special Meeting),
other than Eligible Account Holders and Supplemental Eligible Account
Holders, have each been granted, without payment therefor, non-transferable
Subscription Rights to purchase Common Stock up to the maximum purchase
limitation described in "--Minimum and Maximum Purchase Limitations". If
Other Members subscribe for more shares of Common Stock than remain
available for purchase by Other Members, shares will be allocated among the
subscribing Other Members whose subscriptions remain unsatisfied in the
proportion that the number of votes eligible to be cast by each such Other
Member bears to the total number of votes eligible to be cast by all such
Other Members at the Special Meeting.
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Employees, Officers, and Directors. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible
Account Holders, the ESOP, Supplemental Eligible Account Holders and Other
Members, Home's employees, officers and directors who are not Eligible
Account Holders, Supplemental Eligible Account Holders or Other Members have
each been granted, without payment therefor, non-transferable Subscription
Rights to purchase Common Stock up to the maximum purchase limitation
described in "--Minimum and Maximum Purchase Limitations". If more shares
are subscribed for by such employees, officers and directors than are
available for purchase by them, the available shares will be allocated among
subscribing employees, officers and directors pro rata on the basis of the
amount of their respective subscriptions.
Community Offering
Any shares of Common Stock which remain unsubscribed for in the
Subscription Offering will be offered by the Holding Company to members of
the general public in the Community Offering, which may commence at any time
following commencement of the Subscription Offering, with first priority
given to natural persons and trusts of natural persons residing or located
in Stanly County, North Carolina, and with second priority being given to
natural persons or trusts of natural persons residing or located in the
Surrounding Counties, including IRA accounts, Keogh accounts and similar
retirement accounts established for the benefit of natural persons who are
residents of, Stanly County and the Surrounding Counties. The Community
Offering may terminate at any time after the Expiration Time at the
discretion of Home without prior notice, but no later than
___________________, 1996, unless further extended with the consent of the
Administrator. The Community Offering may not be extended beyond
__________________, 1998. The opportunity to subscribe for shares of Common
Stock in the Community Offering is subject to the right of Home and the
Holding Company, in their sole discretion, to accept or reject any such
orders, in whole or in part, either at the time of receipt of an order or as
soon as practicable following the termination of the Community Offering. In
the event Home and the Holding Company reject any such orders after receipt,
subscribers will be promptly notified and all funds submitted with
subscriptions will be returned with interest at Home's passbook savings
rate.
In the event that subscriptions by first priority and second priority
subscribers in the Community Offering whose orders would otherwise be
accepted exceed the shares available for purchase in the Community Offering,
then subscriptions of natural persons and trusts of natural persons residing
in Stanly County, North Carolina, including IRAs, Keogh accounts and similar
retirement accounts established for the benefit of natural persons who are
residents of Stanly County ("First Priority Community Subscribers") will be
filled in full up to applicable purchase limitations (to the extent such
subscriptions are not rejected by Home and the Holding Company) prior to any
allocation to second priority subscribers in the Community Offering (natural
persons and trusts of natural persons residing in the Surrounding Counties)
("Second Priority Community Subscribers").
In the event of an oversubscription by First Priority Community
Subscribers whose orders would otherwise be accepted, shares of Common Stock
will be allocated first to each First Priority Community Subscriber whose
order is accepted in full or in part by Home and the Holding Company in the
entire amount of such order up to a number of shares no greater than 40,000
shares, which number shall be determined by the Board of Directors of Home
prior to the time the Conversion is consummated with the intent to provide
for a wide distribution of shares among such subscribers. Any shares
remaining after such allocation will be allocated to each First Priority
Community Subscriber whose order is accepted in full or in part on an equal
number of shares basis until all orders are filled. Such allocation shall
also be applied to subscriptions by Second Priority in the Community
Subscribers, in the event shares are available for such subscribers but
there is an oversubscription by them.
In order to ensure proper allocation of shares in the event of an
oversubscription, it is the responsibility of subscribers in the Community
Offering to provide correct addresses of residence on the Stock Order Form.
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Syndicated Community Offering
The Plan of Conversion provides that, if necessary, all shares of
Common Stock not purchased in the Subscription and Community Offerings, if
any, may be offered for sale to the general public in a Syndicated Community
Offering through a syndicate of registered broker-dealers as selected
dealers ("Selected Dealers") to be formed and managed by Trident Securities
acting as agent of the Holding Company in the sale of the Common Stock. The
Holding Company and Home have the right to reject orders, in whole or in
part, in their sole discretion in the Syndicated Community Offering.
Neither Trident Securities nor any registered broker-dealer shall have any
obligation to take or purchase any shares of the Common Stock in the
Syndicated Community Offering; however, Trident Securities has agreed to use
its best efforts in the sale of shares in the Syndicated Community Offering.
Common Stock sold in the Syndicated Community Offering will be sold at the
purchase price of $10.00 per share which is the same price as all other
shares being offered in the Conversion.
It is estimated that the Selected Dealers will receive a negotiated
commission based on the amount of Common Stock sold by the Selected Dealer,
payable by the Holding Company. 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 (the
"Order Date") for the purchase of shares of Common Stock. When and if the
Holding Company believes that enough indications and orders have been
received in the Offerings to consummate the Conversion, Trident Securities
will request, as of the Order Date, Selected Dealers to submit orders to
purchase shares for which they have received indications of interest from
their customers. Selected Dealers will send confirmations of the orders to
such customers on the next business day after the Order Date. Selected
Dealers will debit the accounts of their customers on a date which will be
three business days from the Order Date ("Debit 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 Debit
Date. On the next business day following the Debit Date, Selected Dealers
will remit funds to the account that the Holding Company established for
each Selected Dealer. After payment has been received by the Holding
Company from Selected Dealers, funds will earn interest at Home's passbook
savings rate until the consummation of the Conversion. In the event the
Conversion is not consummated as described above, funds with interest will
be returned promptly to the Selected Dealers, who, in turn, will promptly
credit their customers' brokerage accounts.
The Syndicated Community Offering may close at any time after the
Expiration Time at the discretion of Home and the Holding Company, but in no
case later than ___________________, unless further extended with the
consent of the Administrator. The Syndicated Community Offering may not be
extended beyond ________________.
Certain Restrictions on Transfer of Subscription Rights; False or Misleading
Order Forms
Home's Plan of Conversion, as required by North Carolina and federal
conversion regulations, prohibits the transfer of Subscription Rights.
Subscription Rights may be exercised only by the person to whom they are
issued and only for his or her own account. Persons exercising Subscription
Rights are required to certify that they are purchasing shares for their own
account within the purchase limitations set forth in the Plan of Conversion
and that they have no agreement or understanding for the sale or transfer of
such shares.
Home reserves the right to make an independent investigation of any
facts or circumstances brought to its attention that indicate or tend to
indicate that one or more persons acting independently or as a group acting
in concert may be attempting to violate or circumvent the regulatory
prohibition on transferability of Subscription Rights. The nature and
extent of such investigation will be at Home's sole discretion and Home may
require a holder of Subscription Rights to provide certified affidavits and
other documentation to satisfy Home that its Plan of Conversion and North
Carolina and federal conversion regulations regarding nontransferability are
not being subverted by actions of holders of Subscription Rights. In
extreme cases Home reserves the right to seek legal advice from the General
Counsel of the
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Administrator as to compliance with all regulations governing the
Conversion, including the nontransferability of Subscription Rights.
The Plan of Conversion provides that, if Home's Board of Directors
determines that a subscriber (i) has submitted a false or misleading
information on his or her Stock Order Form or otherwise in connection with
the attempted purchase of shares, (ii) has attempted to purchase shares of
Common Stock in violation of provisions of the Plan of Conversion or (iii)
fails to cooperate with attempts by Home or the Holding Company or their
employees or agents to verify information with respect to purchase rights,
the Board of Directors may reject the order of such subscriber and may refer
the situation to the Administrator.
No Fractional Shares
In making allocations in the event of oversubscriptions, all
computations will be rounded down to the nearest whole share; no fractional
shares will be issued. Excess and other amounts sent by subscribers which
are not used to satisfy subscriptions will be refunded with interest at
Home's passbook savings rate, and amounts designated for withdrawal from
deposit accounts will be released.
Purchase Price of Common Stock and Number of Shares Offered
The purchase price of shares of Common Stock sold in the Subscription
Offering, Community Offering and Syndicated Community Offering will be
$10.00 per share. The North Carolina regulations governing conversions of
North Carolina-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 Valuation Range which is
established by an independent appraisal in the Conversion and is described
below; provided, however, that with the consent of the Administrator and the
FDIC the aggregate purchase price of the Common Stock sold may be increased
to up to 15% above the maximum of the 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 appraisals 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.
Home has retained Ferguson, an independent appraisal firm experienced
in the valuation and appraisal of savings institutions and their holding
companies, to prepare an appraisal of the pro forma market value of Home and
the Holding Company and to assist Home in preparing a business plan. For
its services in determining such valuation and assisting with the business
plan, Ferguson will receive an aggregate fee of $32,000 and will be
reimbursed for certain reasonable out-of-pocket expenses. Home has agreed
to indemnify Ferguson and its employees against certain losses (including
any losses in connection with claims under the federal securities laws)
arising out of its services.
Ferguson has informed Home that its appraisal has been made in reliance
upon the information contained in this Prospectus, including the financial
statements of Home. Ferguson has further informed Home that it also
considered the following factors, among others, in making the appraisal: (i)
the present and projected operating results and financial condition of the
Holding Company and Home; (ii) the economic and demographic conditions in
Home's existing market area; (iii) certain historical, financial and other
information relating to Home; (iv) the proposed dividend policy of the
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Holding Company; (v) a comparative evaluation of the operating and financial
statistics of Home with those of other savings institutions; (vi) the
aggregate size of the offering of the Common Stock; and (vii) the trading
market for the securities of institutions Ferguson believes to be comparable
in relevant respects to the Holding Company and Home and general conditions
in the markets for such securities. In addition, Ferguson has advised Home
that it has considered the effect of the Conversion on the net worth and
earnings potential of the Holding Company and Home.
On the basis of its consideration of the above factors, Ferguson has
advised Home that, in its opinion, at April 30, 1996, the Valuation Range of
Home and the Holding Company was from a minimum of $28,900,000 to a maximum
of $39,100,000, with a midpoint of $34,000,000. Based upon such valuation
and a purchase price for shares offered in the Conversion of $10.00 per
share, the number of shares to be offered ranges from a minimum of 2,890,000
shares to a maximum of 3,910,000 shares, with a midpoint of 3,400,000
shares.
The Board of Directors of Home has reviewed the methodology and
assumptions used by Ferguson in preparing the appraisal and has determined
that the Valuation Range, as well as the methodology and assumptions used,
were reasonable and appropriate.
Upon completion of the Subscription and Community Offerings, Ferguson
will confirm or update its valuation of the estimated aggregate pro forma
market value of Home and the Holding Company. Based on the confirmed or
updated appraisal, a determination will be made of the total number of
shares of Common Stock which shall be offered and sold in the Conversion.
With the consent of the Administrator and the FDIC, the aggregate price
of the shares sold in the Conversion may be increased by up to 15% above the
maximum of the Valuation Range, or to $44,965,000 (4,496,500 shares),
without a resolicitation of subscribers and without any right to cancel,
rescind or change subscription orders, to reflect changes in market and
financial conditions following commencement of the Subscription Offering.
No sale of shares of Common Stock may be consummated unless, after the
expiration of the offering period, Ferguson confirms to Home and the Holding
Company that, to the best of its knowledge, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause
Ferguson to conclude that the aggregate purchase price of the Common Stock
sold in the Conversion is incompatible with its estimate of the aggregate
pro forma market value of Home and the Holding Company at the conclusion of
the Subscription and Community Offerings or Syndicated Community Offering,
if any. If the aggregate pro forma market value of Home and the Holding
Company as of such date is within the Valuation Range (or, with the consent
of the Administrator and FDIC, not more than 15% above the maximum of the
Valuation Range), then such pro forma market value will determine the number
of shares of Common Stock to be sold in the Conversion. If there has
occurred a change in the aggregate pro forma market value of Home and the
Holding Company so that the aggregate pro forma market value is below the
minimum of the Valuation Range or more than 15% above the maximum of the
Valuation Range, a resolicitation of subscribers may be made based upon a
new Valuation Range, the Plan of Conversion may be terminated or such other
actions as the Administrator and the FDIC may permit may be taken.
In the event of a resolicitation, subscribers would be given a
specified time period within which to respond to the resolicitation. If a
subscriber fails to respond to the resolicitation by the end of such period,
the subscription of such subscriber will be canceled, funds submitted with
the subscription will be refunded promptly with interest at Home's passbook
savings rate, and holds on accounts from which withdrawals were designated
will be released. Any such resolicitation will be by means of an amended
prospectus filed with the SEC. A resolicitation may delay completion of the
Conversion. If the Plan of Conversion is terminated, all funds will be
returned promptly with interest at Home's passbook savings rate from the
date payment was deemed received, and holds on funds authorized for
withdrawal from deposit accounts will be released. See "--Exercise of
Subscription Rights and Purchases in the Community Offering".
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The valuation by Ferguson is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing Common
Stock. Ferguson did not independently verify the financial statements and
other information provided by Home, nor did Ferguson value independently the
assets or liabilities of Home. The valuation considers Home as a going
concern and should not be considered as an indication of the liquidation
value of Home or the Holding Company. Moreover, because such valuation is
necessarily based upon estimates and projections of a number of matters, all
of which are subject to change from time to time, no assurance can be given
that persons purchasing such shares in the Conversion will thereafter be
able to sell shares at prices in the range of the foregoing valuation of the
pro forma market value thereof.
A copy of the complete appraisal by Ferguson is on file and available
for inspection at the office of the Savings Institutions Division of the
North Carolina Department of Commerce, Tower Building, Suite 301, 1110
Navaho Drive, Raleigh, North Carolina 27609. A copy is also available for
inspection at the Stock Information Center. A copy of the appraisal has also
been filed as an exhibit to the Registration Statement filed with the SEC
with respect to the Common Stock offered hereby. See "ADDITIONAL
INFORMATION".
Exercise of Subscription Rights and Purchases in Community Offering
In order for Subscription Rights to be effectively exercised in the
Subscription Offering and in order to purchase in the Subscription Offering,
the Stock Order Form, accompanied by the required payment for the aggregate
dollar amount of Common Stock desired or appropriate instructions
authorizing withdrawal from one or more Home deposit accounts (other than
negotiable order of withdrawal accounts or other demand deposit accounts),
must be received by Home by the Expiration Time, which is 12:00 noon, local
time, on __________________. However, the ESOP will not be required to make
payment for shares subscribed for until the date set for consummation of the
Conversion; provided, however, that at the time the ESOP submits its order
form, it has obtained a commitment from the Holding Company or an
independent third party lender to loan the ESOP the funds necessary to
satisfy its order. Subscription Rights (i) for which Home does not receive
Stock Order Forms by the Expiration Time (unless such time is extended), or
(ii) for which Stock Order Forms are executed defectively or are not
accompanied by full payment (or appropriate withdrawal instructions) for
subscribed shares, will expire whether or not Home has been able to locate
the persons entitled to such rights. In order to purchase in the Community
Offering, the Stock Order Form, accompanied by the required payment for the
aggregate dollar amount of Common Stock desired or appropriate instructions
authorizing withdrawal from one or more Home deposit accounts (other than
negotiable order of withdrawal accounts or other demand deposit accounts),
must be received by Home prior to the time the Community Offering
terminates, which could be at any time subsequent to the Expiration Time. No
wire transfer, facsimile, altered or photocopied Stock Order Forms will be
accepted.
An executed Stock Order Form once received by Home, may not be
modified, amended or rescinded without the consent of Home. Home has the
right to extend the subscription period subject to applicable regulations,
unless otherwise ordered by the Administrator, or to waive or permit
correction of incomplete or improperly executed Stock Order Forms, but does
not represent that it will do so.
The amount to be remitted with the Stock Order Form shall be the
aggregate dollar amount that a subscriber or purchaser desires to invest in
the Subscription and Community Offerings. Payment must accompany all
completed Stock Order Forms submitted in the Subscription and Community
Offerings in order for subscriptions to be valid. See "--Purchase Price of
Common Stock and Number of Shares Offered".
Payment for shares will be permitted to be made by any of the following
means: (i) in cash, if delivered in person to either office of Home; (ii) by
check, bank draft, negotiable order of withdrawal or money order, provided
that the foregoing will only be accepted subject to collection and payment;
or (iii) by appropriate authorization of withdrawal from any deposit account
in Home (other than a negotiable order of withdrawal account or other demand
deposit account).
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Wire payments will not be accepted for the purchase of Common Stock. In
order to ensure proper identification of Subscription Rights and proper
allocations in the event of an oversubscription, it is the responsibility of
subscribers to provide correct account verification information on the Stock
Order Form. Stock Order Forms submitted by unauthorized purchasers or in
amounts exceeding purchase limitations will not be honored.
For purposes of determining the withdrawal balance of deposit accounts
from which withdrawals have been authorized, such withdrawals will be deemed
to have been made upon receipt of appropriate authorization therefor, but
interest will be paid by Home on the amount deemed to have been withdrawn at
the contractual rate of interest paid on such accounts until the date on
which the Conversion is completed or terminated.
Interest will be paid by Home on payments for Common Stock made in cash
or by check, bank draft, negotiable order of withdrawal or money order at
Home's passbook savings rate. Such interest shall be paid from the date the
order is accepted for processing and payment in good funds is received by
Home until consummation or termination of the Conversion. Home shall be
entitled to invest all amounts paid on subscriptions for Common Stock for
its own account until completion or termination of the Conversion. Home may
not knowingly lend funds or otherwise extend credit to any person to
purchase Common Stock.
The Stock Order Forms contain appropriate means by which authorization
of withdrawals from deposit accounts may be made to pay for subscribed
shares. Once such a withdrawal has been authorized, none of the designated
withdrawal amount may be withdrawn (except by Home as payment for Common
Stock) until the Conversion is completed or terminated. Savings accounts
will be permitted to be established for the purpose of making payment for
subscribed shares of Common Stock. Funds authorized for withdrawal will
continue to earn interest at the applicable contract interest rate until
completion or termination of the Conversion or, in the case of an order
submitted in the Community Offering, until it is determined that such order
cannot or will not be accepted. Notwithstanding any regulatory provision
regarding penalties for early withdrawal from certificate accounts, payment
for subscribed shares of Common Stock will be permitted through
authorization of withdrawals from such accounts without the assessment of
such penalties. However, if after such withdrawal the applicable minimum
balance requirement ceases to be satisfied, such certificate account will be
canceled and the remaining balance thereof will earn interest at Home's
passbook savings rate.
Upon completion or termination of the Conversion, Home will return to
subscribers all amounts paid with subscriptions which are not applied to the
purchase price for shares, plus interest at its passbook savings rate from
the date good funds are received until the consummation or termination of
the Conversion, and Home will release deposit account withdrawal orders
given in connection with the subscriptions to the extent funds are not
withdrawn and applied toward the purchase of shares.
Delivery of Stock Certificates
Certificates representing Common Stock issued in the Conversion will be
mailed by the Holding Company's transfer agent to persons entitled thereto
at the address of such persons appearing on the Stock Order Form as soon as
practicable following consummation of the Conversion. Any certificates
returned as undeliverable will be held by the Holding Company until claimed
by persons legally entitled thereto or otherwise disposed of in accordance
with applicable law. Until certificates for Common Stock are available and
delivered to subscribers, subscribers may not be able to sell the shares of
Common Stock for which they have subscribed, even though trading of the
Common Stock may have commenced.
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Persons in Non-Qualified or Foreign Jurisdictions
The Holding Company will make reasonable efforts to comply with the
securities laws of all states of the United States in which Eligible Account
Holders, Supplemental Eligible Account Holders, or Other Members entitled to
subscribe for shares of Common Stock reside. However, no shares of Common
Stock or Subscription Rights under the Plan of Conversion will be offered or
sold in a foreign country, or in a state in the United States (i) where a
small number of persons otherwise eligible to subscribe for shares under the
Plan of Conversion reside or (ii) if the Holding Company 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 requirement
that the Holding Company, Home or any employee or representative thereof
register as a broker, dealer, agent or salesperson or register or otherwise
qualify the Subscription Rights or Common Stock for sale in such state. No
payments will be made in lieu of the granting of Subscription Rights to
persons residing in such jurisdictions.
Marketing Arrangements
Home has retained Trident Securities to consult with and advise Home
and the Holding Company and to assist the Holding Company, on a best-efforts
basis, in the marketing of shares in the Offerings. Trident Securities is a
broker-dealer registered with the SEC and a member of the National
Association of Securities Dealers, Inc. ("NASD"). Trident Securities is
headquartered in Raleigh, North Carolina, and its telephone number is (919)
781-8900. Trident Securities will assist Home and the Holding Company in
the Conversion as follows: (i) it will act as marketing advisor with respect
to the Subscription Offering and will represent the Holding Company as
placement agent on a best-efforts basis in the sale of the Common Stock in
the Community Offering and Syndicated Community Offering; (ii) members of
its staff will conduct training sessions to ensure that directors, officers
and employees of Home are knowledgeable regarding the Conversion process;
and (iii) it will provide assistance in the establishment and supervision of
the Stock Information Center, including training staff to properly record
and tabulate orders for the purchase of Common Stock and to respond
appropriately to customer inquiries.
For rendering its services, Home has agreed to pay Trident Securities
(a) a management fee equal to four tenths of one percent (.40%) of the
aggregate dollar amount of Common Stock sold in the Subscription Offering
and the Community Offering and (b) a commission equal to 1.65% of the
aggregate dollar amount of Common Stock sold in the Subscription Offering
and the Community Offering, excluding shares purchased by the ESOP,
directors, executive officers and their "associates" (as defined in the Plan
of Conversion). Home has also agreed to pay to Selected Dealers, if any,
negotiated commissions. Home has paid Trident Securities $10,000 toward
amounts due to such agent.
Home has agreed to reimburse Trident Securities for its reasonable out-
of-pocket expenses, including but not limited to travel, communications,
legal fees and postage, in an amount not exceeding $37,500, and to indemnify
Trident Securities against certain claims or liabilities, including certain
liabilities under the Securities Act. Total fees and commissions to Trident
Securities are expected to be between $537,802 and $733,438 at the minimum
and 15% above the maximum, respectively, of the Valuation Range. See "PRO
FORMA DATA" for the assumptions used to determine these estimates.
Sales of Common Stock will be made primarily by registered
representatives affiliated with Trident Securities or by the broker-dealers
managed by Trident Securities. In addition, subject to applicable law,
executive officers of the Holding Company and Home may participate in the
solicitation of offers to purchase Common Stock. Other employees of Home
may participate in the Offerings in clerical capacities, providing
administrative support in effecting sales transactions and answering
questions of a mechanical nature relating to the proper execution of the
Stock Order Form. Other questions of prospective purchasers, including
questions as to the advisability or nature of the investment, will be
directed to registered representatives. Such other employees have been
instructed not to solicit offers to purchase
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Common Stock or provide advice regarding the purchase of Common Stock. A
Stock Information Center will be established in Home's headquarters office,
in an area separate from Home's banking operations. Employees will inform
prospective purchasers that their questions should be directed to the Stock
Information Center and will provide such persons with the telephone number
of the Stock Information Center. Stock orders will be accepted at Home's
offices and will be promptly forwarded to the Stock Information Center for
processing. Sales of Common Stock by registered representatives will be
made from the Stock Information Center. In addition, Home may hire one or
more temporary clerical persons to assist in typing, opening mail, answering
the phone, and with other clerical duties. An employee of Home will also be
present at the Stock Information Center to process funds and answer
questions regarding payment for stock, including verification of account
numbers in the case of payment by withdrawal authorization and similar
matters. Subject to applicable state law, the Holding Company will rely on
Rule 3a4-1 under the Exchange Act, and sales of Common Stock will be
conducted within the requirements of Rule 3a4-1, so as to permit officers
and current full and part-time Home employees to participate in the sale of
Common Stock. No officer, director or employee of the Holding Company or
Home will be compensated in connection with his or her participation by the
payment of commissions or other remuneration based either directly or
indirectly on the transactions in the Common Stock.
The engagement of Trident Securities and the work performed by Trident
Securities pursuant to its engagement, including a due diligence
investigation, should not be construed by purchasers of Common Stock as
constituting an endorsement or recommendation relating to such investment or
a verification of the accuracy or completeness of information contained in
this Prospectus.
Minimum and Maximum Purchase Limitations
Each person subscribing for Common Stock in the Conversion must
subscribe for at least 50 shares of the Common Stock to be offered in the
Conversion. In addition, the maximum number of shares of Common Stock which
may be purchased in the Conversion by any person or entity (or persons or
entities exercising Subscription Rights through a single account), or group
of persons or entities acting in concert, is 40,000 shares. In addition, no
person or entity, or group of persons or entities acting in concert,
together with any associates, may subscribe for more than 100,000 shares of
Common Stock issued in the Conversion; provided, however, that the ESOP may
purchase up to 8% of the number of shares offered in the Conversion (312,800
shares, assuming the issuance of 3,910,000 shares). Any shares held by the
ESOP and attributed to a natural person shall not be aggregated with other
shares purchased directly by or otherwise attributable to that natural
person.
The Board of Directors of Home may in its absolute discretion (i)
decrease the 40,000 share maximum purchase price limitation to an amount not
less than 1% of the number of shares offered and sold in the Conversion or
(ii) increase such 40,000 share maximum purchase limitation to an amount of
up to 5% of the shares of Common Stock offered and sold. Any decrease or
increase in the maximum purchase limitation by Home's Board of Directors may
occur at any time prior to consummation of the Conversion, either before or
after the Special Meeting on _________________. In the event the 40,000
share maximum purchase limitation is increased, any subscriber in the
Subscription, Community or Syndicated Community Offering who has subscribed
for 40,000 shares and certain other large subscribers in the discretion of
the Holding Company, shall be given the opportunity to increase their
subscriptions up to the then applicable maximum purchase limitation.
The Plan of Conversion further provides that for purposes of the
foregoing limitations the term "associate" is used to indicate any of the
following relationships with a person:
(i) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a
director or officer of Home, the Holding Company or any
subsidiary of Home or of the Holding Company;
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(ii) any corporation or organization (other than Home, the Holding
Company or a majority-owned subsidiary of Home or the Holding
Company) of which the person is an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of
any class of equity security; and
(iii) any trust or other estate in which such person has a substantial
beneficial interest or as to which such person serves as a
trustee or in a similar fiduciary capacity, except for any
tax-qualified employee stock benefit plan or any charitable
trust which is exempt from federal taxation pursuant to Section
501(c)(3) of the Code.
For purposes of the foregoing limitations, (i) directors and officers
of Home or the Holding Company shall not be deemed to be associates or a
group of persons acting in concert solely as a result of their serving in
such capacities, (ii) the ESOP will not be deemed to be acting in concert
with any of its trustees for purposes of determining the number of shares
which any such trustee, individually, may purchase and (iii) shares of
Common Stock held by the ESOP and attributed to an individual will not be
aggregated with other shares purchased directly by, or otherwise
attributable to, that individual.
For purposes of the foregoing limitations, persons will be deemed to be
"acting in concert" if they are (i) knowingly participating in a joint
activity or conscious parallel action towards a common goal (whether or not
pursuant to an express agreement), with respect to the purchase, ownership,
voting or sale of Common Stock or (ii) engaged in a combination or pooling
of voting or other interests in the securities of the Holding Company for a
common purpose pursuant to any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise. The Holding
Company and Home may presume that certain persons are acting in concert
based upon, among other things, the fact that such persons have filed joint
Schedules 13D with the SEC with respect to other companies.
Approval, Interpretation, Amendment and Termination
Under the Plan of Conversion, the Administrator's approval thereof, and
applicable North Carolina conversion regulations, consummation of the
Conversion is subject to satisfaction of certain conditions, including the
following: (i) approval of the Plan of Conversion by the affirmative vote of
a majority of the votes eligible to be cast by members of Home at the
Special Meeting; (ii) sale of shares of Common Stock for an aggregate
purchase price equal to not less than the minimum or more than the maximum
of the Valuation Range unless the aggregate purchase price is increased to
as much as 15% above the maximum with the consent of the Administrator and
FDIC, and (iii) receipt by the Holding Company and Home of favorable
opinions of counsel or other tax advisors as to the federal and state tax
consequences of the Conversion. See "--Income Tax Consequences".
If all conditions for consummation of the Conversion are not satisfied,
no Common Stock will be issued, Home will continue to operate as a North
Carolina-chartered mutual savings bank, all subscription funds will be
promptly returned with interest at Home's passbook savings rate, and all
deposit withdrawal authorizations (and holds placed on such accounts) will
be canceled. In such an event, the Holding Company would not acquire
control of Home.
All interpretations by Home and the Holding Company of the Plan of
Conversion and of the Stock Order Forms and related materials for the
Subscription and Community Offerings will be final, subject to the authority
of the Administrator. Home and the Holding Company may reject Stock Order
Forms that are not properly completed. However, the Holding Company and Home
retain the right, but will not be required, to waive irregularities in
submitted Stock Order Forms or to require the submission of corrected Stock
Order Forms or the remittance of full payment for all shares subscribed for
by such dates as they may specify. In addition, the Plan of Conversion may
be substantively amended by a two-thirds vote of Home's Board of Directors
at any time prior to the Special Meeting, and at any time thereafter by a
two-thirds vote of Home's Board of Directors with the concurrence of the
Administrator. If Home
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determines upon the advice of counsel and after consultation with the
Administrator that any such amendment is material, subscribers would be
given the opportunity to increase, decrease or cancel their subscriptions.
Also, as required by the regulations of the Administrator, the Plan of
Conversion provides that the transactions contemplated thereby may be
terminated by a two-thirds vote of Home's Board of Directors at any time
prior to the Special Meeting and may be terminated by a two-thirds vote of
Home's Board of Directors at any time thereafter but prior to the completion
of the Conversion with the concurrence of the Administrator, notwithstanding
approval of the Plan of Conversion by the Members at the Special Meeting.
Income Tax Consequences
Home has received an opinion from its special counsel, Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P., of Greensboro, North Carolina, to the
effect that for federal income tax purposes: (i) the Conversion will
constitute a tax free reorganization with respect to Home and no gain or
loss will be recognized by Home either in its mutual or stock form; (ii) no
gain or loss will be recognized by Home as a result of the transfer of the
Subscription Rights to Eligible Account Holders; (iii) no gain or loss will
be recognized by Home upon the purchase of Home's stock by the Holding
Company or upon the sale by the Holding Company of its Common Stock; (iv) no
gain or loss will be recognized by Home's depositors with respect to their
deposit accounts at Home as a consequence of the Conversion; (v) the tax
basis of depositors' deposit accounts at Home will not be changed as a
result of the Conversion; (vi) assuming the Subscription Rights have no
value, no gain or loss will be recognized by Eligible Account Holders,
Supplemental Eligible Account Holders, Other Members, or directors, officers
and employees of Home upon either the issuance to them of the Subscription
Rights or the exercise or lapse thereof; (vii) no gain or loss will be
recognized by Eligible Account Holders or Supplemental Eligible Account
Holders upon the distribution to them of interests in the Liquidation
Account; (viii) assuming the Subscription Rights have no value, the tax
basis for Common Stock purchased in the Conversion will be the amount paid
therefor; and (ix) the tax basis of interests in the Liquidation Account
will be zero. Home has been further advised by its special counsel, Brooks,
Pierce, McLendon, Humphrey & Leonard, L.L.P., that the tax effects of the
Conversion under North Carolina tax laws will be consistent with the federal
income tax consequences.
Several of the foregoing legal opinions are premised on the assumption
that the Subscription Rights will have no value. Home has been advised by
Ferguson that, in its opinion, the Subscription Rights will not have any
value, based on the fact that such rights are acquired by the recipients
without cost, are non-transferable, are of short duration and afford the
recipients the right only to purchase Common Stock at a price equal to its
estimated fair market value as of the date such rights are issued, which
will be the same price paid by all purchasers in the Conversion. The
opinion of Ferguson is not binding on the IRS and if the Subscription Rights
were ultimately determined to have ascertainable value, recipients of
Subscription Rights would have to include in gross income an amount equal to
the value of the Subscription Rights received by them. The basis of the
Common Stock purchased pursuant to Subscription Rights would be increased by
the amount of income realized with respect to the receipt or exercise of the
Subscription Rights. Moreover, recipients of Subscription Rights could then
have to report the transaction to the IRS. Each Eligible Account Holder,
Supplemental Eligible Account Holder, Other Member or other recipient of
Subscription Rights is encouraged to consult with his, her or its own tax
advisor as to the tax consequences in the event the Subscription Rights are
deemed to have ascertainable value.
No legal opinion has been or will be received with respect to any tax
consequences of the Conversion not specifically described above, including
the tax consequences to Eligible Account Holders, Supplemental Eligible
Account Holders, Other Members, other recipients of Subscription Rights or
purchasers of Common Stock under the laws of any other state, local or
foreign taxing jurisdiction to which they may be subject. Special counsel
expresses no opinion regarding the value of the Subscription Rights.
120
<PAGE>
LEGAL OPINIONS
The validity of the issuance of the Common Stock in the Conversion will
be passed upon for the Holding Company by its special counsel, Brooks,
Pierce, McLendon, Humphrey & Leonard, L.L.P., Greensboro, North Carolina,
which firm has also rendered its opinion to Home concerning certain federal
and North Carolina income tax aspects of the Conversion as described herein
under "THE CONVERSION--Income Tax Consequences". Certain legal matters
will be passed upon for Trident Securities by Housley Kantarian & Bronstein,
P.C., Washington, D.C.
EXPERTS
The statements of financial condition of Home as of September 30, 1995
and 1994, and the related statements of income, equity and cash flows for
the three years ended September 30, 1995 included herein, have been included
herein in reliance upon the report of McGladrey & Pullen LLP, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
Ferguson has consented to being named as an expert herein and to the
summary herein of its appraisal report as to the estimated pro forma market
value of Home and the Holding Company and its opinion with respect to
Subscription Rights.
REGISTRATION REQUIREMENTS
The Holding Company will register its Common Stock with the SEC
pursuant to Section 12(b) of the Exchange Act in connection with the
Conversion and will not deregister the Common Stock for a period of 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.
ADDITIONAL INFORMATION
The Holding Company has filed a registration statement with the SEC on
Form S-1 under the Securities Act, with respect to the Common Stock offered
hereby. As permitted by the rules and regulations of the SEC, this
Prospectus does not contain all of the information set forth in the
registration statement. Such information can be examined and copied at the
public reference facilities of the SEC located at Room 1024, 450 Fifth
Street, N. W., Washington, D.C. 20549, and at the regional offices of the
SEC at 75 Park Place, Fourteenth Floor, New York, New York 10007 and Room
3190, John C. Kluczynski Building, 230 South Dearborn Street, Chicago,
Illinois 60604. Copies of such material can be obtained by mail from the
SEC at prescribed rates from the Public Reference Section of the SEC at 450
Fifth Street, N. W., Washington, D.C. 20549. The statements contained in
this Prospectus as to the contents of any contract or other document filed
as an exhibit to the registration statement are, of necessity, brief
descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
Home has filed an Application to Convert a Mutual Savings Bank to
a Stock Owned Savings Bank with the Administrator. Pursuant to the North
Carolina conversion regulations, this Prospectus omits certain information
contained in such Application. The Application, which contains a copy of
Ferguson's appraisal, may be inspected at the office of the Administrator,
Savings Institutions Division, North Carolina Department of Commerce, Tower
Building, Suite 301,
121
<PAGE>
1110 Navaho Drive, Raleigh, North Carolina 27609. Copies of the Plan of
Conversion, which includes a copy of Home's proposed Amended Certificate of
Incorporation and Stock Bylaws, and copies of the Holding Company's Articles
of Incorporation and Bylaws are available for inspection at each office of
Home and may be obtained by writing to Home at 155 West South Street,
Albemarle, North Carolina 28001; Attention: Carl M. Hill, President, or by
telephoning Home at (704) 982-9184. A copy of Ferguson's independent
appraisal is also available for inspection at the Stock Information Center.
122
<PAGE>
Index to Financial Statements
Page
----
Independent Auditors' Report F-2
<TABLE>
<CAPTION>
Financial Statements:
<S> <C>
Statements of financial condition as of
March 31, 1996 (unaudited), September 30, 1995 and 1994 F-3
Statements of income for the six months ended
March 31, 1996 and 1995 (unaudited),
and the three years ended September 30, 1995 F-4 - F-5
Statements of equity for the six months ended
March 31, 1996 (unaudited), and the
three years ended September 30, 1995 F-6
Statements of cash flows for the six months
ended March 31, 1996 and 1995
(unaudited) and the three years ended
September 30, 1995 F-7 - F-10
Notes to financial statements F-11 - F-29
</TABLE>
All schedules are omitted because of the absence of the conditions under
which they are required or because the required information is included in
the financial statements of Home Savings Bank of Albemarle, S.S.B., or
related notes. No financial statements are provided for the Holding Company
since it was not in operation for any of the periods presented.
<PAGE>
[LETTERHEAD OF MCGLADREY & PULLEN, LLP APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
We have audited the accompanying statements of financial condition of Home
Savings Bank of Albemarle, S.S.B. as of September 30, 1995 and 1994, and the
related statements of income, equity and cash flows for the years then ended.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Home Savings Bank of Albemarle,
S.S.B. as of September 30, 1995 and 1994, and the results of its operations and
its cash flows for the year's then endedin conformity with generally accepted
accounting principles.
As discussed in Notes 3 and 11 to the financial statements, the Bank changed its
methods of accounting for investment securities and income taxes in 1994.
/s/ McGladrey & Pullen
Charlotte, North Carolina
October 25, 1995
F-2
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
STATEMENTS OF FINANCIAL CONDITION
March 31, 1996, September 30, 1995 and 1994
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Cash and cash equivalents:
Noninterest-bearing deposits (Note 2) $ 8,145,000 $ 2,872,000 $ 2,796,000
Interest-bearing deposits 11,931,000 8,622,000 3,853,000
Securities held to maturity, fair value 1996,
$6,058,000; 1995, $4,642,000;
1994, $5,271,000 (Note 4) 5,987,000 4,529,000 5,325,000
Securities available for sale (Note 3) 29,943,000 30,974,000 25,076,000
Federal Home Loan Bank stock (Note 4) 1,346,000 1,346,000 1,346,000
Loans receivable, net (Note 5) 106,710,000 108,597,000 106,844,000
Real estate acquired in settlement of loans 73,000 135,000 176,000
Accrued interest receivable (Note 6) 1,151,000 1,150,000 1,027,000
Office properties and equipment, net (Note 7) 1,248,000 1,294,000 1,187,000
Prepaid expenses and other assets (Note 8) 387,000 239,000 207,000
Income tax refund receivable 57,000 105,000 --
---------------------------------------------------
$ 166,978,000 $ 159,863,000 $ 147,837,000
===================================================
LIABILITIES AND EQUITY
- ---------------------------------------------------------------------------------------------------------
Liabilities:
Deposits (Note 9) $ 144,282,000 $ 137,647,000 $ 127,312,000
Advance payments by borrowers for taxes
and insurance 305,000 97,000 474,000
Accounts payable and other liabilities 1,043,000 968,000 591,000
Checks outstanding on disbursement account 563,000 489,000 783,000
Income taxes payable -- -- 187,000
Deferred income taxes (Note 11) 65,000 236,000 179,000
---------------------------------------------------
Total liabilities 146,258,000 139,437,000 129,526,000
---------------------------------------------------
Commitments (Notes 10 and 13)
Equity:
Retained earnings, substantially restricted
(Notes 11 and 12) 20,691,000 20,392,000 18,531,000
Unrealized gain (loss) on securities available
for sale, net of tax (Note 3) 29,000 34,000 (220,000)
---------------------------------------------------
20,720,000 20,426,000 18,311,000
---------------------------------------------------
$ 166,978,000 $ 159,863,000 $ 147,837,000
===================================================
</TABLE>
See Notes to Financial Statements.
F-3
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
STATEMENTS OF INCOME
Six Months Ended March 31, 1996 and 1995, and Years
Ended September 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
March 31,
1996 1995
- --------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans $ 4,844,000 $ 4,823,000
Mortgage-backed certificates 196,000 204,000
Securities 938,000 736,000
Other interest-bearing deposits 373,000 68,000
--------------------------------------
6,351,000 5,831,000
Interest expense on deposits (Note 9) 3,831,000 2,532,000
--------------------------------------
Net interest income 2,520,000 3,299,000
Provision for loan losses (Note 5) 300,000 --
--------------------------------------
Net interest income after provision for loan losses 2,220,000 3,299,000
--------------------------------------
Noninterest income 62,000 61,000
--------------------------------------
Noninterest expenses:
Compensation and benefits (Note 10) 898,000 724,000
Occupancy 140,000 115,000
Federal insurance premium expense 155,000 142,000
Data processing 106,000 99,000
Pension liquidation expense (Note 8) -- --
Contributions 191,000 24,000
Other 304,000 304,000
--------------------------------------
1,794,000 1,408,000
--------------------------------------
Income before income taxes 488,000 1,952,000
Income taxes (Note 11) 189,000 729,000
--------------------------------------
Income before cumulative effect of a change in
accounting principle 299,000 1,223,000
Cumulative effect on prior years of changing to a different
method of accounting for income taxes (Note 11) -- --
--------------------------------------
Net Income $ 299,000 $ 1,223,000
======================================
</TABLE>
See Notes to Financial Statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
September 30,
1995 1994 1993
---------------------------------------------------
<S> <C> <C>
$ 9,731,000 $ 9,906,000 $ 10,877,000
394,000 469,000 636,000
1,585,000 1,222,000 1,334,000
270,000 397,000 197,000
---------------------------------------------------
11,980,000 11,994,000 13,044,000
5,980,000 4,973,000 6,037,000
---------------------------------------------------
6,000,000 7,021,000 7,007,000
-- -- --
---------------------------------------------------
6,000,000 7,021,000 7,007,000
---------------------------------------------------
126,000 147,000 206,000
---------------------------------------------------
1,859,000 1,324,000 1,018,000
256,000 267,000 202,000
295,000 318,000 290,000
205,000 194,000 188,000
-- 493,000 33,000
46,000 61,000 30,000
549,000 500,000 383,000
---------------------------------------------------
3,210,000 3,157,000 2,144,000
---------------------------------------------------
2,916,000 4,011,000 5,069,000
1,055,000 1,498,000 1,765,000
---------------------------------------------------
1,861,000 2,513,000 3,304,000
-- 485,000 --
---------------------------------------------------
$ 1,861,000 $ 2,028,000 $ 3,304,000
===================================================
</TABLE>
F-5
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
STATEMENTS OF EQUITY
For the Six Months Ended March 31, 1996, and Years Ended
September 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Retained
Earnings Unrealized
Substantially Gain(Loss) Total
Restricted on Securities Equity
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, September 30, 1992 $13,199,000 -- 13,199,000
Net income 3,304,000 -- 3,304,000
--------------------------------------------------
Balance, September 30, 1993 16,503,000 -- 16,503,000
Net income 2,028,000 -- 2,028,000
Net unrealized loss on securities available
for sale -- (220,000) (220,000)
--------------------------------------------------
Balance, September 30, 1994 18,531,000 (220,000) 18,311,000
Net income 1,861,000 -- 1,861,000
Net change in unrealized gain (loss) on
securities available for sale -- 254,000 254,000
--------------------------------------------------
Balance, September 30, 1995 20,392,000 34,000 20,426,000
Net income 299,000 -- 299,000
Net change in unrealized gain (loss) on
securities available for sale -- (5,000) (5,000)
--------------------------------------------------
Balance, March 31, 1996 (Unaudited) $20,691,000 $ 29,000 $20,720,000
==================================================
</TABLE>
See Notes to Financial Statements.
F-6
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
STATEMENTS OF CASH FLOWS
Six Months Ended March 31, 1996 and 1995 and Years Ended September 30, 1995,
1994 and 1993
<TABLE>
<CAPTION>
March 31,
1996 1995
- ------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 299,000 $ 1,223,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 300,000 --
Net accretion of premiums and discounts on securities (14,000) (10,000)
Amortization of deferred loan fees (68,000) (33,000)
FHLB stock dividends -- --
Gain on recalled securities -- --
Gain on sale of real estate acquired in settlement of loans (12,000) (8,000)
Provision for depreciation 50,000 41,000
Deferred income taxes (172,000) 50,000
(Increase) decrease in assets:
Accrued interest receivable (1,000) (31,000)
Prepaid and other assets (148,000) (100,000)
Income tax refund receivable 48,000 --
Increase (decrease) in liabilities:
Accounts payable and other liabilities 75,000 (35,000)
Interest payable 27,000 21,000
Checks outstanding on disbursement accounts 74,000 (503,000)
Income taxes payable -- (192,000)
--------------------------------
Net cash provided by operating activities 458,000 423,000
--------------------------------
Cash Flows from Investing Activities
Purchases of securities held to maturity (1,954,000) --
Purchases of securities available for sale (8,916,000) (2,008,000)
Proceeds from maturities of securities available
for sale 9,960,000 1,500,000
Proceeds from maturities and recalls of securities held to
maturity -- --
Principal collected on securities held to maturity 493,000 388,000
Loan originations and principal payments on loans, net 1,673,000 (2,776,000)
Purchase of office properties and equipment (4,000) (111,000)
Proceeds from sale of foreclosed real estate 56,000 57,000
Investment reduction in foreclosed real estate -- --
Net cash provided by (used in) investing activities 1,308,000 (2,950,000)
--------------------------------
</TABLE>
See Notes to Financial Statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
September 30,
1995 1994 1993
------------------------------------------------------
<S> <C> <C>
$ 1,861,000 $ 2,028,000 $ 3,304,000
-- -- --
(19,000) (9,000) (3,000)
(73,000) (137,000) (247,000)
-- (33,000) (75,000)
-- (4,000) (33,000)
(3,000) (14,000) (41,000)
104,000 83,000 59,000
(75,000) 372,000 23,000
(123,000) 111,000 101,000
(32,000) 366,000 (195,000)
(105,000) -- 36,000
377,000 94,000 (16,000)
63,000 5,000 (4,000)
(294,000) 253,000 37,000
(187,000) (22,000) 209,000
------------------------------------------------------
1,494,000 3,093,000 3,155,000
------------------------------------------------------
-- (11,934,000) (10,972,000)
(11,987,000) -- --
6,500,000 -- --
-- 5,500,000 10,400,000
790,000 1,744,000 2,113,000
(1,751,000) 10,178,000 (3,786,000)
(211,000) (241,000) (307,000)
115,000 127,000 112,000
-- -- (15,000)
------------------------------------------------------
(6,544,000) 5,374,000 (2,455,000)
------------------------------------------------------
</TABLE>
F-8
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
STATEMENTS OF CASH FLOWS (CONTINUED)
Six Months Ended March 31, 1996 and 1995 and Years Ended September 30, 1995,
1994 and 1993
<TABLE>
<CAPTION>
March 31,
1996 1995
- -------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash Flows from Financing Activities
Net increase (decrease) in certificates of deposit, demand
deposits, NOW accounts and passbook savings accounts $ 6,608,000 $ 1,078,000
Net increase (decrease) in advance payments by borrowers for
taxes and insurance 208,000 (143,000)
-------------------------------------
Net cash provided by (used in) financing activities 6,816,000 935,000
-------------------------------------
Increase (decrease) in cash and cash equivalents 8,582,000 (1,592,000)
Cash and cash equivalents:
Beginning 11,494,000 6,649,000
-------------------------------------
Ending $ 20,076,000 $ 5,057,000
=====================================
Supplemental Schedule of Cash and Cash Equivalents
Cash:
Interest-bearing deposits $ 11,931,000 $ 2,687,000
Noninterest-bearing deposits 8,145,000 2,370,000
-------------------------------------
$ 20,076,000 $ 5,057,000
=====================================
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest $ 3,804,000 $ 2,511,000
Income taxes 313,000 871,000
Supplemental Disclosures of Noncash Transactions
Transfer of loans to real estate acquired in settlement of loans 89,000 106,000
Loans originated to finance the sale of real estate acquired in
settlement of loans 107,000 63,000
Transfers from securities held to maturity to securities
available for sale -- --
Net change in unrealized (gain) loss on securities available for
sale, net of deferred taxes (credits) (5,000) 60,000
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
September 30,
1995 1994 1993
-----------------------------------------------------
<S> <C> <C>
$ 10,272,000 $ (12,377,000) $ 936,000
(377,000) (11,000) 37,000
-----------------------------------------------------
9,895,000 (12,388,000) 973,000
-----------------------------------------------------
4,845,000 (3,921,000) 1,673,000
6,649,000 10,570,000 8,897,000
-----------------------------------------------------
$ 11,494,000 $ 6,649,000 $ 10,570,000
=====================================================
$ 8,622,000 $ 3,853,000 $ 7,038,000
2,872,000 2,796,000 3,532,000
-----------------------------------------------------
$ 11,494,000 $ 6,649,000 $ 10,570,000
=====================================================
$ 5,917,000 $ 4,969,000 $ 6,042,000
1,346,000 1,520,000 1,520,000
209,000 212,000 376,000
138,000 42,000 282,000
-- 25,420,000 --
(254,000) 220,000 --
</TABLE>
F-10
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
Nature of business: Home Savings Bank of Albemarle, S.S.B. (the "Bank") is
- ------------------
primarily engaged in the business of obtaining savings deposits and originating
single-family residential loans within its primary lending area, the Stanley
County, North Carolina area. The Bank's underwriting polices require such loans
to be made 80% loan-to-value based upon appraised values unless private mortgage
insurance is obtained. These loans are secured by the underlying properties.
Unaudited financial statements: The unaudited financial statements furnished
- ------------------------------
reflect all adjustments, consisting of normal recurring accruals, which are in
the opinion of management, necessary for a fair presentation of the financial
position as of March 31, 1996 and the results of operations and cash flows for
the six months ended March 31, 1996 and 1995. The results for the six month
periods are not necessarily indicative of the operating results of the Bank for
the entire year.
Basis of financial statement presentation and accounting estimates: The
- ------------------------------------------------------------------
financial statements have been prepared in conformity with generally accepted
accounting principles. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the statement of financial condition
and revenues and expenses for the period. Actual results could differ from those
estimates.
Cash and cash equivalents: For purposes of reporting the statements of cash
- -------------------------
flows, the Bank includes cash on hand and demand deposits at other financial
institutions as cash equivalents. From time to time, the Bank maintains deposits
with financial institutions which are in excess of the federally-insured
amounts.
Investment in debt securities and accounting change: The Bank has investments
- ---------------------------------------------------
in debt securities. Debt securities consist primarily of obligations of the
U.S. Government and federal agencies and mortgage-backed certificates.
The Bank adopted the provisions of Financial Accounting Standards Board (FASB)
Statement No. 115, Accounting for Certain Investments in Debt and Equity
-----------------------------------------------------
Securities, as of September 30, 1994. Statement 115 requires that management
- ----------
classify all securities as trading, available for sale, or held to maturity on
the date of adoption, and thereafier as individual investment securities are
acquired, and that the appropriateness of such classification be reassessed at
each statement of financial condition date. Since the Bank does not buy
investment securities in anticipation of short-term fluctuations in market
prices, none of the investment securities are classified as trading in
accordance with Statement 115. All securities have been classified as either
available-for-sale or held to maturity.
Securities available for sale: Securities classified as available for sale are
- -----------------------------
those securities that the Bank intends to hold for an indefinite period of time
but not necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Bank's assets
and liabilities, liquidity needs, regulatory capital considerations, and other
similar factors. Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases in equity, net
of the related deferred tax effect. Realized gains or losses, determined on the
basis of the cost of specific securities sold, are included in income.
F-11
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)
Securities held to maturity: Securities classified as held to maturity are those
- ---------------------------
securities the Bank has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by the interest
method over their contractual lives. Based on the Bank's financial position and
liquidity, management believes the Bank has the ability to hold these securities
to maturity.
Investment in Federal Home Loan Bank stock: The Bank, as a member of the Federal
- ------------------------------------------
Home Loan Bank system, is required to maintain an investment in capital stock of
the Federal Home Loan Bank in an amount equal to the greater of 1% of its
outstanding home loans or 5% of advances from the FHLB. No ready market exists
for the Federal Home Loan Bank stock, and it has no quoted market value.
Loans receivable: Loans receivable are stated at unpaid principal balances,
- ----------------
less the allowance for loan losses, the undisbursed portion of construction
loans, and net deferred loan origination fees.
Allowance for loan losses: The allowance for loan losses is increased by charges
- -------------------------
to income and decreased by charge-off (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Bank's past loan
loss experience, known and inherent risks in the portfolio, adverse situations
that may affect the borrowers' ability to pay, the estimated value of any
underlying collateral, and current economic conditions. While management uses
the best information to make evaluations, future adjustments may be necessary,
if economic or other conditions differ substantially from the assumptions used.
The Bank adopted SFAS No. 114 Accounting by Creditors for Impairment of a Loan
------------------------------------------------
which was subsequently amended by SFAS No. 118 Accounting by Creditors for
---------------------------
Impairment of a Loan - Income Recognition and Disclosures on October 1, 1995.
- ---------------------------------------------------------
SFAS No. 114 requires that the Bank establish specific loan loss allowances on
impaired loans if it is doubtful that all principal and interest due according
to the loan terms will be collected. An allowance on an impaired loan is
required if the present value of the future cash flows discounted using the
loan's effective interest rate is less than the carrying value of the loan. An
impaired loan can also be valued based upon its fair value in the market place
or on the basis of its underlying collateral if the loan is collateral
dependent. If foreclosure is imminent, and the loan is collateral dependent, the
loan must be valued based upon the fair value of the underlying collateral. The
Statement does not allow previously issued financial statements to be restated
and its adoption had no effect on the Bank's 1996 financial statements.
Interest income: The Bank adopted SFAS No. 118 on October 1, 1995 which
- ---------------
requires the disclosure of the Bank's method of accounting for interest income
on impaired loans. The Bank continues to accrue interest on impaired loans,
including loans delinquent 90 days or more. At the time a loan becomes
nonperforming, an allowance for uncollected interest is established for all
uncollected interest. If and when management determines that the collectibility
of principal and interest is no longer in doubt, the loan is returned to
performing status.
F-12
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)
Loan origination fees: Loan fees and certain direct loan origination costs are
- ---------------------
deferred, and the net fee or cost is recognized as an adjustment to interest
income using the interest method over the contractual life of the loans,
adjusted for actual prepayments.
Real estate acquired in settlement of loans: Real estate acquired in settlement
- -------------------------------------------
of loans is initially recorded at estimated fair value. Based on periodic
evaluations by management, the carrying values are reduced where they exceed
fair value minus estimated costs to sell. Costs relating to the development and
improvement of the property are capitalized, while holding costs of the property
are charged to expense in the period incurred.
Office properties and equipment: Office properties and equipment are stated at
- -------------------------------
cost less accumulated depreciation which is computed principally by the
straight-line method over the estimated useful life.
Defined benefit pension plan: The Bank provides a noncontributory pension plan
- ----------------------------
covering substantially all of the Bank's employees who are eligible as to age
and length of service. The Bank's funding policy is to make the maximum annual
contribution that is deductible for income tax purposes.
Income taxes: Effective October 1, 1993, the Bank adopted Financial Accounting
- ------------
Standards Board ("FASB") Statement No. 109, Accounting for Income Taxes. Under
----------------------------
this method, deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment. Prior to October 1, 1993, deferred income tax expenses and credits
were recorded to reflect the tax consequences of timing differences between the
recording of income and expense for financial purposes of filing federal income
tax returns at income tax rates in effect when the difference arose. Reference
should also be made to Note 11 regarding a change in the method of accounting
for income taxes.
Off-statement of financial condition risk: The Bank is a party to financial
- -----------------------------------------
instruments with off-statement of financial condition risk such as commitments
to extend credit and lines of credit. Management assesses the risk related to
these instruments for potential losses on an ongoing basis.
Fair value of financial instruments: The estimated fair values required under
- -----------------------------------
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, have been
-----------------------------------------------------
determined by the Bank using available market information and appropriate
valuation methodologies; however, considerable judgment is required to develop
the estimates of fair value. Accordingly, the estimates presented for the fair
value of the Bank's financial instruments are not necessarily indicative of the
amounts the Bank could realize in a current market exchange. The use of
different market assumptions or estimation methodologies may have a material
effect on the estimated fair value amounts.
F-13
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)
The fair value estimates presented are based on pertinent information available
to management as of March 31, 1996 and September 30, 1995 and 1994. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since these dates and
therefore, current estimates of fair value may differ significantly from the
amounts presented in these financial statements.
Note 2. Cash
Noninterest-bearing cash amounting to approximately $16,000, $11,000 and $53,000
was held by a trustee at March 31, 1996 and September 30, 1995 and 1994,
respectively, and was required to be used to repay loan principal and interest
and taxes and insurance for the related loans due to the Federal National
Mortgage Association.
Note 3. Securities Available for Sale and Accounting Change
As discussed in Note 1, the Bank adopted FASB Statement No. 115 as of September
30, 1994. There was no effect on net income in 1994 from adopting FASB Statement
No. 115. The September 30, 1994 equity was decreased by $220,000 net of $114,000
related deferred tax effect, to recognize the net unrealized holding loss on
securities available for sale at that date.
Under Statement 115, debt and equity securities "available for sale" are carried
at fair value with unrealized holding gains and losses excluded from earnings
and reported net of income taxes in a separate component of equity. Such
securities may be sold in response to certain conditions such as changes in
market interest rates, needs for liquidity, or changes in the availability of
and the yield on alternative investments, but are not bought and held
principally for the purpose of selling in the near term with the objective of
generating profits on short-term differences in price. Prior to the adoption of
Statement 115, these securities were reported as "held to maturity".
F-14
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Securities Available for Sale and Accounting Change (Continued)
Amortized cost and fair values of securities available for sale are summarized
as follows:
<TABLE>
<CAPTION>
March 31, 1996
----------------------------------------------------------------
(Unaudited)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and federal agencies
obligations $ 29,880,000 $ 112,000 $ (64,000) $ 29,928,000
Other security 15,000 -- -- 15,000
----------------------------------------------------------------
$ 29,895,000 $ 112,000 $ (64,000) $ 29,943,000
================================================================
<CAPTION>
September 30, 1995
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and federal agencies
obligations $ 30,907,000 $ 110,000 $ (58,000) $ 30,959,000
Other security 15,000 -- -- 15,000
----------------------------------------------------------------
$ 30,922,000 $ 110,000 $ (58,000) $ 30,974,000
================================================================
<CAPTION>
September 30, 1994
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and federal agencies
obligations $ 25,395,000 $ 10,000 $ (344,000) $ 25,061,000
Other security 15,000 -- -- 15,000
----------------------------------------------------------------
$ 25,410,000 $ 10,000 $ (344,000) $ 25,076,000
================================================================
</TABLE>
The amortized cost and fair values of securities available for sale by
contractual maturity are shown below. The "other security" has no contractual
maturity.
<TABLE>
<CAPTION>
March 31, 1996 September 30, 1995
----------------------------------------------------------------
(Unaudited)
Amortized Fair Amorized Fair
Cost Value Cost Value
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 9,987,000 $ 10,021,000 $ 12,959,000 $ 12,945,000
Due after one year through five years 19,893,000 19,907,000 17,948,000 18,014,000
----------------------------------------------------------------
29,880,000 29,928,000 30,907,000 30,959,000
Other security 15,000 15,000 15,000 15,000
----------------------------------------------------------------
$ 29,895,00 $ 29,943,00 $ 30,922,000 $ 30,974,000
================================================================
</TABLE>
F-15
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Securities Available for Sale and Accounting Change (Continued)
There are no sales of securities available for sale for the six months ended
March 31, 1996 and 1995 and for the years ended September 30, 1995, 1994, and
1993.
Note 4. Securities Held to Maturity
Under Statement No. 115, identification of securities as "held to maturity", a
more stringent definition than previously contemplated for securities held to
maturity, indicates that such securities will be held until their contractual
maturities, and will not be available to be sold even in response to certain
conditions such as changes in market interest rates, needs for liquidity, or
changes in the availability of and the yield on alternative investments.
Carrying amounts and fair values of securities being held to maturity are
summarized as follows:
<TABLE>
<CAPTION>
March 31, 1996
------------------------------------------------------------------------------------------------------
(Unaudited)
Gross Gross
Principal Unamortized Unearned Amortized Unrealized Unrealized Fair
Balance Premiums (Discounts) Costs Gains (Losses) Value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
and related securities $ 5,998,000 $ 41,000 $ (52,000) $ 5,987,000 $ 159,000 $ (88,000) $ 6,058,000
======================================================================================================
<CAPTION>
September 30, 1995
------------------------------------------------------------------------------------------------------
Gross Gross
Principal Unamortized Unearned Amortized Unrealized Unrealized Fair
Balance Premiums (Discounts) Costs Gains (Losses) Value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
and related securities $ 4,530,000 $ 48,000 $ (49,000) $ 4,529,000 $ 116,000 $ (3,000) $ 4,642,000
======================================================================================================
<CAPTION>
September 30, 1994
------------------------------------------------------------------------------------------------------
Gross Gross
Principal Unamortized Unearned Amortized Unrealized Unrealized Fair
Balance Premiums (Discounts) Cost Gains (Losses) Value
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
and related securities $ 5,320,000 $ 60,000 $ (55,000) $ 5,325,000 $ 51,000 $ (105,000) $ 5,271,000
======================================================================================================
</TABLE>
There were no sales of investment securities held to maturity during the six
months ended March 31, 1996 and 1995, and the years ended September 30, 1995,
1994 and 1993. Gross proceeds from maturities and recalled securities during the
six months ended March 31, 1996 and 1995, and the years ended September 30,
1995, 1994 and 1993 were $-0-, $-0-, $-0-, $5,500,000 and $10,400,000,
respectively. Gross realized gains were $-0-, $-0-, $-0-, $4,000 and $33,000 on
recalled securities during the six months ended March 31, 1996 and 1995, and the
years ended September 30, 1995, 1994 and 1993, respectively.
The contractual maturities of securities held to maturity are not disclosed
because the actual maturities of mortgage-backed securities may differ from
contractual maturities because the mortgages underlying the securities may be
prepaid without a penalty.
F-16
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Securities Held to Maturity (Continued)
The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required
to maintain an investment in capital stock of the Federal Home Loan Bank in an
amount equal to the greater of 1% of its outstanding home loans or 5% of
advances from the FHLB. No ready market exists for the Federal Home Loan Bank
stock, and it has no quoted market value. For presentation purposes, such stock
is assumed to have a fair value which is equal to cost.
Note 5. Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
September 30,
March 31, ---------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Principal balances:
First mortgage loans (principally conventional):
Secured by one-to-four family residences $ 90,274,000 $ 94,036,000 $ 91,674,000
Secured by other properties 10,172,000 8,743,000 9,025,000
Construction loans 5,973,000 5,368,000 6,015,000
Home equity and second mortgage 3,766,000 3,875,000 4,056,000
-----------------------------------------------------------------------
110,185,000 112,022,000 110,770,000
-----------------------------------------------------------------------
Other loans 294,000 331,000 281,000
-----------------------------------------------------------------------
Allowance for loan losses (427,000) (137,000) (140,000)
Undisbursed portion of construction loans (2,797,000) (3,100,000) (3,602,000)
Net deferred loan origination fees (545,000) (519,000) (465,000)
-----------------------------------------------------------------------
(3,769,000) (3,756,000) (4,207,000)
-----------------------------------------------------------------------
$ 106,710,000 $ 108,597,000 $ 106,844,000
=======================================================================
</TABLE>
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, September 30,
-------------------------------------------------------------------------------------
1996 1995 1995 1994 1993
-------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning $ 137,000 $ 140,000 $ 140,000 $ 144,000 $ 144,000
Loans charged off (17,000) (3,000) (3,000) (4,000) (1,000)
Recoveries 7,000 -- -- -- 1,000
Provision charged to operations 300,000 -- -- -- --
-------------------------------------------------------------------------------------
Balance, ending $ 427,000 $ 137,000 $ 137,000 $ 140,000 $ 144,000
=====================================================================================
</TABLE>
F-17
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5. Loans Receivable (Continued)
The Bank adopted SFAS No. 114 Accounting by Creditors for Impairment of a Loan
------------------------------------------------
on October 1, 1995, which requires that the Bank establish a specific allowance
on impaired loans. The Bank considers loans delinquent more than 90 days to be
impaired. Such loans amounted to approximately $702,000 at March 31, 1996 and
had an average outstanding balance of approximately $1,080,000 for the six
months pending March 31, 1996. These loans are primarily collateral dependent
and management has determined that the underlying collateral is in excess of the
carrying amounts. As a result, the Bank has determined that specific allowances
on these impaired loans is not required.
Nonperforming loans for which interest has been reduced totaled approximately
$702,000, $981,000 and $946,000 at March 31, 1996 and September 30, 1995 and
1994, respectively. The differences between interest income that would have been
recorded under the original terms of such loans and the interest income actually
recognized totaled ($11,000), $2,000, $7,000, $10,000 and $47,000 for the six
months ended March 31, 1996 and 1995, and for the years ended September 30,
1995, 1994 and 1993, respectively
Mortgage loans serviced for others consist of FNMA loans and are not included in
the accompanying statements of financial condition. The unpaid principal
balances of these loans totaled $846,000, $970,000 and $1,262,000 at March 31,
1996, and September 30, 1995 and 1994, respectively. Custodial escrow balances
maintained in connection with the foregoing loan servicing was approximately
$16,000, $11,000 and $53,000 at March 31, 1996 and September 30, 1995 and 1994,
respectively.
Officers and directors of the Bank were indebted to the Bank for loans made in
the ordinary course of business. The balances of such loans were $1,006,000,
$984,000 and $889,000 at March 31, 1996 and September 30, 1995 and 1994,
respectively.
Note 6. Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
March 31, September 30,
---------------------------
1996 1995 1994
------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Securities $ 402,000 $ 410,000 $ 325,000
Mortgage-backed securities 48,000 40,000 45,000
Loans receivable 701,000 700,000 657,000
------------------------------------------
$ 1,151,000 $ 1,150,000 $ 1,027,000
==========================================
</TABLE>
F-18
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Office Properties and Equipment
Office properties and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
--------------------------------
1996 1995 1994
--------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Land $ 138,000 $ 138,000 $ 138,000
Buildings and improvements 1,313,000 1,313,000 1,308,000
Furniture and equipment 622,000 615,000 454,000
Automobiles 45,000 45,000
--------------------------------------------------
2,118,000 2,111,000 1,900,000
Accumulated depreciation 870,000 817,000 713,000
--------------------------------------------------
$ 1,248,000 $ 1,294,000 $ 1,187,000
==================================================
</TABLE>
Note 8. Employee Pension Plan
Previous to November 10, 1993, the Bank had a defined benefit pension plan
covering substantially all of its employees. The benefits were based on years of
service and the employee's expected compensation during the last five years of
employment. The Bank's funding policy was to contribute annually the maximum
amount that could be deducted for federal income tax purposes. On September 13,
1993, the Bank's board of directors approved the termination of the defined
benefit pension plan effective November 10, 1993. In the year ended September
30, 1994, all plan participants received a lump sum distribution from the Plan.
Total pension expense for the year ended September 30, 1994 was $493,000, which
included $491,000 related to the termination of the Plan. The expense is
attributed to changes in the actuarial assumptions such as lower retirement
ages, inclusion of value of early retirement subsidies and a decrease in
interest rates as compared to the prior years.
On October 1, 1994, the Bank established a new pension plan for its employees.
The new plan is a defined benefit plan covering substantially all of the Bank's
employees. The benefits are based on years of service and the employee's
expected compensation during five consecutive plan years within the last ten
plan years that produce the highest average. Total pension expense was $67,000,
$29,000 and $108,000 for the six months ended March 31, 1996 and 1995 and for
the year ended September 30, 1995, respectively, and is included in compensation
and benefits in the accompanying statements of income.
F-19
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8. Employee Pension Plan (Continued)
The following table sets forth the Plan's funded status and amounts recognized
in the Bank's statement of financial condition as of March 31, 1996 and
September 30, 1995:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
-------------------------------------
(Unaudited)
<S> <C> <C>
Actuarial present value of benefit (obligations):
Accumulated benefit (obligation):
Vested $ (183,000) $ (90,000)
Nonvested (18,000) (24,000)
-------------------------------------
(201,000) (144,000)
Effect of projected future compensation (466,000) (439,000)
-------------------------------------
Projected benefit (obligation) for service rendered
to date (667,000) (553,000)
Plan assets at fair value; primarily cash and
short-term investments 226,000 84,000
-------------------------------------
Projected benefit (obligation) in excess of plan
assets (441,000) (469,000)
Unrecognized prior service cost 455,000 547,000
Unrecognized net (gain)/loss 76,000 (73,000)
-------------------------------------
Prepaid pension cost (included in prepaid and
other assets) $ 90,000 $ 5,000
=====================================
</TABLE>
The components of net pension expense as of March 31, 1996, September 30, 1995
and 1994 are as follows (The information is not available for the six months
ended March 31, 1995):
<TABLE>
<CAPTION>
Years Ended
Six Months Ended September 30,
March 31, -----------------------------------
1996 1995 1994
-------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 20,000 $ 33,000 $ --
Interest cost on projected benefit obligation 27,000 43,000 25,000
Actual return on plan assets (7,000) (2,000) (26,000)
Net amortization and deferral 27,000 34,000 3,000
-------------------------------------------------------
Net pension expense $ 67,000 $ 108,000 $ 2,000
=======================================================
</TABLE>
Assumptions used to develop the net periodic pension cost as of March 31, 1996
and September 30, 1995 were:
<TABLE>
<S> <C>
Discount rate 8.0 %
Expected long-term rate of return on assets 8.0
Rate of increase in compensation levels 5.0
</TABLE>
F-20
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average March 31, September 30,
Rate at 1996 1995 1994
March 31, ----------------------------------------------------------------------------
1996 Amount Percent Amount Percent Amount Percent
-----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Demand and NOW accounts,
including noninterest bearing
of $723,000 at March 31, 1996,
$562,000 at September 30, 1995 and
$647,000 at September 31, 1994 2.26 % $ 7,433,000 5.15 % $ 6,893,000 5.01 % $ 6,947,000 5.46 %
Moneymarket 2.99 7,529,000 5.22 7,809,000 5.67 12,164,000 9.55
Passbook savings 3.00 15,390,000 10.67 15,490,000 11.25 17,711,000 13.91
----------------------------------------------------------------------------
30,352,000 21.04 % 30,192,000 21.93 % 36,822,000 28.92 %
----------------------------------------------------------------------------
Certificates of deposit:
2.00% to 3.99% 15,000 0.01 % 15,000 0.01 % 45,130,000 35.45 %
4.00% to 5.99% 50,469,000 34.98 38,643,000 28.07 45,207,000 35.51
6.00% to 7.99% 63,244,000 43.83 68,622,000 49.86 -- --
8.00% to 9.99% -- -- -- -- 41,000 0.03
----------------------------------------------------------------------------
6.09 113,728,000 78.82 % 107,280,000 77.94 % 90,378,000 70.99 %
----------------------------------------------------------------------------
Accrued interest payable 202,000 0.14 % 175,000 0.13 % 112,000 0.09 %
----------------------------------------------------------------------------
$114,282,000 100.00 % $137,647,000 100.00 % $127,312,000 100.00 %
============================================================================
Weighted average cost of savings
deposits 5.40 % 5.43 % 3.67 %
========= ========= =========
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $10,107,000, $10,838,000 and
$5,633,000 at March 31, 1996, and September 30, 1995 and 1994, respectively.
The aggregate amount of certificates of deposit by maturity with a minimum
denomination of $100,000 included in the above table is as follows:
<TABLE>
<CAPTION>
March 31,
1996
----------------
Maturity Period: (Unaudited)
<S> <C>
Within 3 months or less $ 2,120,000
Over 3 months through 6 months 2,490,000
Over 6 months through 12 months 1,915,000
Over 12 months 3,582,000
----------------
$ 10,107,000
================
</TABLE>
F-21
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Deposits (Continued)
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
March 31, September 30,
---------------------------------------------------------------------------------
1996 1995 1995 1994 1993
---------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Passbook savings $ 231,000 $ 255,000 $ 492,000 $ 555,000 $ 553,000
NOW and money market 214,000 270,000 496,000 579,000 545,000
Certificates of deposit 3,386,000 2,007,000 4,992,000 3,839,000 4,939,000
---------------------------------------------------------------------------------
$ 3,831,000 $ 2,532,000 $ 5,980,000 $ 4,973,000 $ 6,037,000
=================================================================================
</TABLE>
The Bank has pledged securities with a book value of $1,000,000 at March 31,
1996 as collateral for public deposits.
Eligible savings accounts are insured to $100,000 by the Savings Association
Insurance Fund (SAIF) which is administered by the Federal Deposit Insurance
Corporation (FDIC).
Note 10. Deferred Compensation Agreements
The Bank has entered into unfunded deferred compensation agreements providing
retirement and death benefits for six active and two retired directors and
supplemental retirement and death benefits income agreements for two executive
officers. Vested benefits under the deferred compensation agreements are payable
in monthly installments over 10 and 15 year periods for the supplemental income
agreements. The present value of the liability for the benefits is being accrued
over the vesting period per the underlying agreements. The total of the deferred
compensation expense and supplemental income agreement for the six months ended
March 31, 1996 and 1995, and for the years ended September 30, 1995, 1994, and
1993 amounted to approximately $111,000, $17,000, $379,000, $121,000, and $-0-,
respectively.
Note 11. Accounting Change and Income Tax Matters
Effective October 1, 1993, the Bank adopted FASB Statement No. 109, Accounting
----------
for Income Taxes. The adoption of Statement 109 changes the Bank's method of
- ----------------
accounting for income taxes from the deferred method to a liability method.
Under the deferred method, the Bank deferred the past tax effects of timing
differences between financial reporting and taxable income. As explained in
Note 1, the liability method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the reported amounts of assets and liabilities and their tax bases.
F-22
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11. Accounting Change and Income Tax Matters (Continued)
Under FASB No. 109, a net deferred tax liability has been provided for certain
increases in the Bank's tax bad debt reserves subsequent to September 30, 1988
in excess of recorded book loan loss allowances. At March 31, 1996, retained
earnings contain certain additions to bad debt preserves for income tax purposes
of approximately $2,870,000, the balance at September 30, 1988, for which no
deferred taxes have been provided because the Bank does not intend to use these
reserves for purposes other than to absorb losses.
If amounts which qualified as bad debt deductions are used for purposes other
than to absorb losses or adjustments arising from the carryback of net operating
losses, income taxes may be imposed at the then existing rates. The unrecorded
deferred income tax liability on the above amount was approximately $1,119,000
as of March 31, 1996.
The effect of the adjustments to the October 1, 1993 statement of financial
condition to adopt Statement 109 was $485,000. This amount is reported as the
effect of a change in accounting principle on the accompanying 1994 statement of
income.
The tax effects of temporary differences that gave rise to significant portions
of the net deferred tax liability in the statement of financial condition at
March 31, 1996, and September 30, 1995 and 1994 as adjusted for the adoption of
FASB Statement No. 109, were:
<TABLE>
<CAPTION>
March 31, September 30,
------------------------------------------------------
1996 1995 1994
------------------------------------------------------
Deferred tax liabilities: (Unaudited)
<S> <C> <C> <C>
FHLB stock dividends $ 231,000 $ 231,000 $ 215,000
Reserve for bad debts 402,000 412,000 416,000
Unrealized gain on securities available for sale 19,000 18,000 --
Property and equipment 65,000 59,000 40,000
Other 35,000 9,000 --
------------------------------------------------------
Total 752,000 729,000 671,000
------------------------------------------------------
Deferred tax assets:
Net deferred loan fees and costs 115,000 80,000 113,000
Deferred compensation and supplemental income 385,000 333,000 188,000
Reserve for uncollected interest 20,000 26,000 --
Unrealized loss on securities available for sale -- -- 114,000
Allowance for loan losses 167,000 54,000 77,000
------------------------------------------------------
Total 687,000 493,000 492,000
------------------------------------------------------
Net deferred tax liability $ 65,000 $ 236,000 $ 179,000
======================================================
</TABLE>
A valuation allowance was not recorded for deferred tax assets at March 31,
1996, September 30, 1995 or September 30, 1994.
F-23
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11. Accounting Change and Income Tax Matters (Continued)
Income tax expense (credits) consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
---------------------------------------------------------------------------------
1996 1995 1995 1994 1993
---------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current $ 361,000 679,000 $ 1,130,000 $ 1,611,000 1,742,000
Deferred (172,000) 50,000 (75,000) (113,000) 23,000
---------------------------------------------------------------------------------
Total $ 189,000 729,000 $ 1,055,000 $ 1,498,000 1,765,000
=================================================================================
</TABLE>
The following is a reconciliation of the federal
income tax rate of 34% to the effective tax rate:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, September 30,
--------------------------------------------------------------------------------
1996 1995 1995 1994 1993
--------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statutory federal income tax rate 34.0 34.0 % 34.0 % 34.0 % 34.0 %
Increase in taxes resulting from:
Tax bad debt deduction -- -- -- -- (2.9)
State income taxes, net of federal
benefit 4.7 3.3 2.2 3.3 3.7
--------------------------------------------------------------------------------
38.7 % 37.3 % 36.2 % 37.3 % 34.8 %
================================================================================
</TABLE>
Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to tax bad debt reserves established for the
purpose of absorbing losses. The applicable provisions of the law permit the
Bank, upon meeting certain critical tests, to deduct from taxable income an
allowance for bad debts based on the greater of 8% of taxable income before such
deduction or actual loss experience. The Bank has utilized the experience method
for the years ended September 30, 1995 and 1994 and the percentage of taxable
income method for the year ended September 30, 1993.
Note 12. Capital Requirements
The FDIC requires the Bank to have a minimum leverage ratio of Tier I Capital
(principally consisting of retained earnings and any future common stockholders'
equity, less any intangible assets) to all assets of at least 3%, provided that
it receives the highest rating during the examination process. For institutions
that receive less than the highest rating, the Tier I capital requirement is 1%
to 2% above the stated minimum. The FDIC also requires the Bank to have a ratio
of total capital to risk-weighted assets of 8%, of which at least 4% must be in
the form of Tier I capital. The Administrator requires a net worth equal to at
least 5% of total assets.
F-24
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12. Capital Requirements (Continued)
At March 31, 1996, the Bank complied with all the capital requirements described
above as shown below:
<TABLE>
<CAPTION>
Leverage N. C.
Ratio of Tier I Savings
GAAP Tier I Risk-Adjusted Risk-Based Bank
Equity Capital Capital Capital Capital
--------------------------------------------------------------------------------
(Dollars in Thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
GAAP equity $ 20,720 $ 20,720 $ 20,720 $ 20,720 $ 20,720
===============
Supplemental capital items:
General valuation allowance -- 427 427
Unrealized (gains) on
securities available for sale (29) (29) (29) (29)
----------------------------------------------------------------
Regulatory capital 20,691 20,691 21,118 21,118
Minimum capital requirement 6,679 2,726 5,452 8,349
----------------------------------------------------------------
Excess regulatory capital $ 14,012 $ 17,965 $ 15,666 $ 12,769
================================================================
Total assets at March 31, 1996 $ 166,978 $ 166,978
============== ==============
Risk-weighted assets at
March 31, 1996 $ 68,152 $ 68,152
Capital as a percentage of ==============================
assets:
Actual 12.39% 30.36% 30.99% 12.65 %
Required 4.00 4.00 8.00 5.00
----------------------------------------------------------------
Excess 8.39% 26.36% 22.99% 7.65 %
================================================================
</TABLE>
Note 13. Financial Installments with Off-Statement of Financial Condition Risk
The Bank is a party to financial instruments with off-statement of financial
condition risk in the normal course of business to meet the financing needs of
it customers. These financial instruments include commitments to extend credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of financial
condition. The contract or notional amounts of those instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual or notional amount of these instruments. The Bank
uses the same credit polices in making commitments and conditional obligations
as it does for on-statement of financial condition instruments.
F-25
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 13. Financial Instruments with Off-Statement of Financial Condition Risk
(Continued)
<TABLE>
<CAPTION>
March 31, 1996
----------------------------------
Fixed Rate Variable Rate
----------------------------------
<S> <C> <C>
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit, mortgage loans $ 1,311,000 $ --
Undisbursed lines of credit -- 2,814,000
----------------------------------
$ 1,311,000 $ 2,814,000
==================================
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and many
require payment of a fee. The total commitment amounts do not necessarily
represent future cash requirements, since some may expire without being drawn
upon. The Bank evaluates peach customers credit worthiness on a case-by-case
basis.
Note 14. Disclosures About Fair Value of Financial Instruments
The fair value of the Bank's cash and cash equivalents is estimated to be equal
to its recorded amount. For securities held to maturity and securities available
for sale, the fair value is estimated using quoted market values obtained from
independent pricing services. For Federal Home Loan Bank stock, the fair value
is the same as the recorded book value since the stock can be redeemed at face
value.
The fair value for all fixed rate loans has been estimated by discounting the
projected future cash flows using the rate at which similar loans would be made
to borrowers with similar credit ratings and for similar maturities. The
discount rate used has been adjusted by an estimated credit risk factor to
approximate the adjustment that would be applied in the marketplace for any
nonperforming loans. Certain prepayment assumptions have also been made
depending upon the original contractual lives of the loans. The fair value for
all adjustable rate loans has been estimated to be equal to their carrying
amounts because the repricing periods are relatively short-term in nature.
The fair value of deposits with no stated maturities, including checking
accounts and statement savings accounts, is estimated to be equal to the amount
payable on demand. The fair value of certificates of deposit is based upon the
discounted value of the contractual cash flows. The discount rates used in these
calculations approximate the current rates offered for deposits of similar
remaining maturities.
The fair values of checks outstanding on the disbursement account, accrued
interest receivable, accrued interest payable and advance payments to borrowers
for taxes and insurance are presumed to be their recorded book values.
The estimated fair value of commitments to extend credit is estimated using fees
currently charged for similar arrangements adjusted for changes in interest
rates and credit risk that has occurred subsequent to origination. Because the
Bank believes that the credit risk associated with available but undisbursed
commitments would essentially offset fees that could be recognized under similar
arrangements, and because the commitments are either short term or subject to
immediate repricing, no fair value has been assigned to these off-statement of
financial condition commitments.
F-26
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 14. Disclosures About Fair Value of Financial Instruments (Continued)
The recorded book value and estimated fair value of the Bank's financial
instruments at March 31, 1996, September 30, 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
March 31, September 30,
-----------------------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Values Fair Value Values Fair Value Values Fair Value
-----------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 20,076,000 $ 20,076,000 $ 11,494,000 $ 11,494,000 $ 6,649,000 $ 6,649,000
Securities held to maturity 5,987,000 6,058,000 4,529,000 4,642,000 5,325,000 5,271,000
Securities available for sale 29,943,000 29,943,000 30,974,000 30,974,000 25,076,000 25,076,000
Federal Home Loan Bank
stock 1,346,000 1,346,000 1,346,000 1,346,000 1,346,000 1,346,000
Loans receivable, net 106,710,000 107,722,000 108,597,000 108,824,000 106,844,000 108,300,000
Accrued interest receivable 1,151,000 1,151,000 1,150,000 1,150,000 1,027,000 1,027,000
Financial Liabilities:
Savings deposits with no
stated maturities 30,352,000 30,352,000 30,192,000 30,192,000 36,822,000 36,822,000
Savings deposits with
stated maturities 113,728,000 114,440,000 107,280,000 107,644,000 90,378,000 89,875,000
Checks outstanding on
disbursement account 563,000 563,000 489,000 489,000 783,000 783,000
Accrued interest payable 202,000 202,000 175,000 175,000 112,000 112,000
Advance payments by
borrowers for taxes and
insurance 305,000 305,000 97,000 97,000 474,000 474,000
</TABLE>
Note 15. Dissolution of Subsidiary
Effective September 13, 1994, the Board of Directors approved the dissolution of
Stanly County Service Corporation, a wholly-owned subsidiary. The stock of the
corporation was canceled and the equity was distributed, in the form of
dividends, to the Bank. The assets acquired were recorded at the carrying value
to Stanly County Service Corporation. The subsidiary was inactive prior to
dissolution.
F-27
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 16. Subsequent Event-Plan of Conversion (Unaudited)
Pending the approval of the Board of Directors, the Bank will adopt a Plan of
Conversion (the Plan) under which the Bank will convert from a North Carolina
chartered mutual savings bank to a North Carolina chartered stock savings bank
and will become a wholly-owned subsidiary of a holding company formed in
connection with the conversion. The holding company will issue common stock to
be sold in the conversion and will use that portion of the net proceeds thereof
which it does not retain to purchase the capital stock of the Bank. The Plan is
subject to approval by regulatory authorities and the members of the Bank at a
special meeting.
At the time of the conversion, the Bank will establish a liquidation account in
the amount equal to its net worth as reflected in its latest statement of
financial condition used in its final conversion-offering circular. The
liquidation account will be maintained for the benefit of eligible deposit
account holders who continue to maintain their deposit accounts in the Bank
after conversion. Only in the event of a complete liquidation each deposit
account holder will be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance for deposit accounts then held before any liquidation distribution may
be made with respect to common stock. Dividends paid by the Bank subsequent to
the conversion cannot be paid from this liquidation account.
The Bank may not declare or pay a cash dividend on its common stock if its net
worth would thereby be reduced below either the aggregate amount then required
for the liquidation account or the minimum regulatory capital requirements
imposed by federal and state regulations. As a North Carolina-chartered stock
savings bank, the Bank may not declare or pay a cash dividend on its capital
stock if the effect of such transaction would be to reduce the net worth of the
Bank to an amount which is less than the minimum amount required by applicable
federal and state regulations. For a period of five years after its conversion
from mutual to stock form, the Bank must obtain written approval from the
Administrator of the North Carolina Savings Institutions Division before
declaring or paying a cash dividend on its capital stock in an amount in excess
of one-half of the greater of (i) the Banks net income for the most recent
fiscal year end, or (ii) the average of the Banks net income after dividends for
the most recent year end and not more than two of the immediately preceding
fiscal year ends.
If the conversion is ultimately successful, conversion costs will be accounted
for as a reduction of the stock proceeds. If the conversion is unsuccessful,
conversion costs will be charged to the Bank's operations. The Bank incurred
approximately $18,000 of conversion costs as of March 31, 1996, which have been
deferred and included in prepaid assets.
Note 17. Reclassification
Certain amounts in the September 30, 1995, 1994, and 1993 financial statements
have been reclassified to conform with March 31, 1996 presentation with no
effect on net income or retained earnings.
F-28
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 18. Future Reporting Requirements
The FASB has issued SFAS No. 123, Accounting for Stock-Based Compensation, which
the Bank has not been required to adopt as of March 31, 1996.
The Statement, which will be in effect for the Bank's fiscal year pending
September 30, 1997, will require that an entity account for stock based
compensation plans using a fair value based method which measures compensation
cost at the grant date based upon the value of the award, which is then
recognized over the service period, usually the vesting period. The accounting
requirements of the Statement apply to grants of awards entered into in fiscal
years that begin after December 15, 1995. The Statement allows entities to
continue to use APB Opinion No. 25 to measure compensation cost, but requires
that the proforma effects on net income and earnings per share be disclosed to
reflect the difference between the compensation cost, if any, from applying APB
Opinion No. 25 and the related cost measured by the fair value method defined in
the Statement. The Statement is not expected to have a material effect on the
Bank's financial statements because management is expected to elect to continue
to use the accounting and reporting permitted by APB Opinion No. 25 and will
disclose the differences, if any, as proforma effects in notes to the financial
statements of not utilizing the fair value method prescribed in SFAS No. 123.
F-29
<PAGE>
================================== ==========================================
<TABLE>
<S> <C>
No dealer, salesperson or any
other individual or entity has Between
been authorized to give any 2,890,000 and 4,496,500 Shares
information or to make any
representation not contained in
this Prospectus in connection
with the offering made hereby,
and, if given or made, any such
other information or
representation must not be
relied upon as having been
authorized by South Street
Financial Corp. or Home Savings
Bank of Albemarle, S.S.B..
This Prospectus does not
constitute an offer to sell, or
a solicitation of an offer to
buy, any of the securities
offered hereby, or any other
securities, to any person in
any jurisdiction in which such
offer or solicitation is not
authorized or in which the
person making such offer or
solicitation is not authorized
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
South Street Financial Corp. or
Home Savings Bank of Albemarle, SOUTH STREET
S.S.B. since any of the dates FINANCIAL CORP.
as of which information is
furnished herein or since the
date hereof.
_____________________________
TABLE OF CONTENTS
Page
-----
Summary......................... 4
Selected Financial and
Other Data of Scotland......... 14
Risk Factors................... 16 (Proposed Holding Company for
South Street Financial Corp.... 23 Home Savings Bank of Albemarle, Inc., SSB)
Home Savings Bank of
Albemarle, S.S.B............... 24
Use of Proceeds................ 25
Dividend Policy................ 26
Market for Common Stock........ 27
Capitalization................. 27
Pro Forma Data................. 29
Historical and Pro Forma
Capital Compliance............. 33
Anticipated Stock Purchases
by Management.................. 35
Management's Discussion and
Analysis of Financial
Condition and Operating
Results........................ 36 Common Stock
Business of the Holding
Company........................ 47
Business of Home............... 47
Taxation....................... 73
Supervision and Regulation..... 74
Management of the
Holding Company................ 86
Management of Home............. 87
Description of Capital
Stock.......................... 99
Anti-Takeover Provisions
of the Holding Company
and Home....................... 101
Certain Provisions of the
Charters and Bylaws of The
Holding Company and Home....... 105
The Conversion................. 105 ---------------
Legal Opinions................. 121 PROSPECTUS
Experts........................ 121 ---------------
Registration Requirements...... 121
Additional Information......... 121 Trident Securities, Inc.
Index to Financial
Statements of Home Savings
Bank of Albemarle, SSB......... F-1
Until _________, 1996, 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.
</TABLE>
___________,1996
================================ ==========================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution. Set forth below is an
-------------------------------------------
estimate of the amount of fees and expenses (other than the Underwriters
commissions) to be incurred in connection with the issuance and distribution of
the shares.
<TABLE>
<CAPTION>
<S> <C>
Registration and Filing Fees................... $ 54,000
Postage and Printing........................... $ 100,000
Accounting Fees and Expenses................... $ 40,000
Appraisal and Business Plan Fees and Expenses.. $ 40,000
Legal Fees and Expenses........................ $ 130,000
Fees and Commissions to Sales Agent............ $ 733,500
Sales Agent Expenses........................... $ 37,500
Other.......................................... $ 84,000
----------
$1,219,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers. The Registrant's
-----------------------------------------
Articles of Incorporation provide that, to the fullest extent permitted by the
North Carolina Business Corporation Act (the "NCBCA"), no person who serves as a
director shall be personally liable to the Registrant or any of its stockholders
or otherwise for monetary damages for breach of any duty as director. The
Registrant's Bylaws state that any person who at any time serves or has served
as a director or officer of the Registrant, or who, while serving as a director
or officer of the Registrant, serves or has served at the request of the
Registrant as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
as a trustee or administrator under an employee benefit plan, shall have a right
to be indemnified by the Registrant to the fullest extent permitted by law
against (a) reasonable expenses, including attorneys' fees, incurred by him in
connection with any threatened, pending or completed civil, criminal,
administrative, investigative, or arbitrative action, suit, or proceeding (and
any appeal therein), whether or not brought by or on behalf of the Registrant,
seeking to hold him liable by reason of the fact that he is or was acting in
such capacity, and (b) reasonable payments made by him in satisfaction of any
judgment, money decree, fine (including an excise tax assessed with respect to
an employee benefit plan) or penalty for which he may have become liable in any
such action, suit or proceeding, or in connection with a settlement approved by
the Board of Directors of any such action, suit or proceeding.
Sections 55-8-50 through 55-8-58 of the NCBCA contain provisions
prescribing the extent to which directors and officers shall or may be
indemnified. Section 55-8-51 of the NCBCA permits a corporation, with certain
exceptions, to indemnify a present or former director against liability if (i)
the director conducted himself in good faith, (ii) the director reasonably
believed (x) that the director's conduct in the director's official capacity
with the corporation was in its best interests and
II-1
<PAGE>
(y) in all other cases the director's conduct was at least not opposed to the
corporation's best interests, and (iii) in the case of any criminal proceeding,
the director had no reasonable cause to believe the director's conduct was
unlawful. A corporation may not indemnify a director in connection with a
proceeding by or in the right of the corporation in which the director was
adjudged liable to the corporation or in connection with a proceeding charging
improper personal benefit to the director. The above standard of conduct is
determined by the board of directors, or a committee or special legal counsel or
the shareholders as prescribed in Section 55-8-55.
Sections 55-8-52 and 55-8-26 of the NCBCA require a corporation to
indemnify a director or officer in the defense of any proceeding to which the
director or officer was a party against reasonable expenses when the director or
officer is wholly successful in the director's or officer's defense, unless the
articles of incorporation provide otherwise. Upon application, the court may
order indemnification of the director or officer if the director or officer is
adjudged fairly and reasonably so entitled under Section 55-8-54.
In addition, Section 55-8-57 permits a corporation to provide for
indemnification of directors, officers, employees or agents, in its articles of
incorporation or bylaws or by contract or resolution, against liability in
various proceedings and to purchase and maintain insurance policies on behalf of
these individuals.
The foregoing is only a general summary of certain aspects of North
Carolina law dealing with indemnification of directors and officers and does not
purport to be complete. It is qualified in its entirety by reference to the
relevant statutes, which contain detailed specific provisions regarding the
circumstances under which and the person for whose benefit indemnifications
shall or may be made.
Item 15. Recent Sales of Unregistered Securities. On May 17, 1996, Registrant
---------------------------------------
sold one share of common stock, no par value per share, to Carl M. Hill for an
aggregate purchase price of $10.00. Such sale was exempt from registration under
Section 4(2) of Securities Act of 1933.
Item 16. Exhibits. The following exhibits and financial statement schedules
--------
are filed herewith or will, as noted, be filed by amendment.
II-2
<PAGE>
S-1 Exhibit Pages
(a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No.
(Per Exhibit
Tables in
Item 601 of
Regulation S-K) Description
--------------- -----------
<S> <C>
(1)(a) Engagement letter dated March 12, 1996
between Home Savings Bank of Albemarle,
S.S.B. and Trident Securities, Inc.
(1)(b) Form of Sales Agency Agreement among South
Street Financial Corp., Home Savings Bank of
Albemarle, S.S.B. and Trident Securities,
Inc. (to be filed subsequently)
(2) Plan of Holding Company Conversion of Home
Savings Bank of Albemarle, S.S.B.
(3)(a) Articles of Incorporation of South Street
Financial Corp.
(3)(b) Bylaws of South Street Financial Corp.
(4) Forms of Stock Certificate for South Street
Financial Corp. and Home Savings Bank of
Albemarle, Inc., S.S.B. (to be filed
subsequently)
(5) Opinion and consent of Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P. as to
legality of securities to be registered
hereby
(8)(a) Opinion and consent of Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P. as to
federal and state tax consequences
(8)(b) Opinion of Ferguson & Co., LLP as to the
value of subscription rights
(10)(a) Letter Agreement dated February 29, 1996
between Home Savings Bank of Albemarle,
S.S.B. and Ferguson & Co., LLP for appraisal
services and for services in connection with
preparation of a regulatory business plan
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
(Per Exhibit
Tables in
Item 601 of
Regulation S-K) Description
--------------- -----------
<S> <C>
(10)(b) Form of Employment Agreement to be entered
into between Home Savings Bank of Albemarle,
Inc., S.S.B. and Carl M. Hill
(10)(c) Form of Employment Agreement to be entered
into between Home Savings Bank of Albemarle,
Inc., S.S.B. and R. Ronald Swanner
(10)(d) Form of the Management Recognition Plan of
Home Savings Bank of Albemarle, Inc., S.S.B.
(10)(e) Form of Registrant's Stock Option Plan and
Trust
(10)(f) Form of Home Savings Bank of Albemarle,
Inc., S.S.B. Severance Plan
(23)(a) Consent of McGladrey & Pullen, L.L.P.
(23)(b) Consent of Ferguson & Co., LLP
(99)(a) Appraisal Report of Ferguson & Co., LLP
(99)(b) Form of Stock Order Form (to be filed
subsequently)
(99)(c) Summary Proxy Statement
</TABLE>
(b) Financial Statement Schedules
-----------------------------
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
------------
(a) The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter
to permit prompt delivery to each purchaser.
II-4
<PAGE>
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such 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 question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(c) 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;
(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 end 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 a 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-5
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, 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 deemed to 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.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Albemarle, State of North
Carolina, on the 21st day of May, 1996.
SOUTH STREET FINANCIAL CORP.
By: /s/ Carl M. Hill
------------------------------
Carl M. Hill, President
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Date: May 21 , 1996 By: /s/ Carl M. Hill
------------- -----------------------------------------------
Carl M. Hill, President and Director (Principal
Executive Officer)
Date: May 21 , 1996 By: /s/ Christopher F. Cranford
------------- -----------------------------------------------
Christopher F. Cranford, Treasurer and
Controller (Principal Financial Officer and
Principal Accounting Officer)
Date: May 21 , 1996 By: /s/ Caldwell A. Holbrook, Jr.
------------- -----------------------------------------------
Caldwell A. Holbrook, Jr. Director
Date: May 21 , 1996 By: /s/ Joel A. Huneycutt
------------- -----------------------------------------------
Joel A. Huneycutt, Director
Date: May 21 , 1996 By: /s/ Douglas Dwight Stokes
------------- -----------------------------------------------
Douglas Dwight Stokes, Director
Date: May 21 , 1996 By: /s/ R. Ronald Swanner
------------- -----------------------------------------------
R. Ronald Swanner, Director
Date: May 21 , 1996 By: /s/ Greg E. Underwood
------------- -----------------------------------------------
Greg E. Underwood, Director
<PAGE>
Exhibit 1(a)
[TRIDENT SECURITIES LETTERHEAD]
May 21, 1996
Board of Directors
Home Savings Bank, SSB
155 West South
Albemarle, North Carolina 28002
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and Home Savings Bank, SSB, Albemarle, North
Carolina (the "Bank") concerning our investment banking services in connection
with the possible conversion of the Bank from a mutual to a capital stock form
of organization.
Trident is prepared to assist the Bank in connection with the offering of its
shares of common stock during the subscription offering and community offering
as such terms are defined in the Bank's Plan of Conversion. The specific terms
of the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the "Agreement") between Trident and the Bank to be executed
on the date the offering circular/prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the
subscription offering and community offering will be the price established by
the Bank's Board of Directors, based upon an independent appraisal as approved
by the appropriate regulatory authorities, provided such price is mutually
acceptable to Trident and the Bank.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the Bank
in the sale of its common stock during the subscription offering and community
offering. Additionally, Trident may enter into agreements with other National
Association of Securities Dealers, Inc., ("NASD") member firms to act as
selected dealers, assisting in the sale of the common stock. Trident and the
Bank will determine the selected dealers to assist the Bank during the community
offering. At the appropriate time, Trident in conjunction with its counsel,
will conduct an examination of the relevant documents and records of the Bank as
Trident deems necessary and appropriate. The Bank will make all documents,
records and other information deemed necessary by Trident or its counsel
available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Bank:
<PAGE>
Board of Directors
May 20, 1996
Page 2
1. A management fee in the amount of four tenths of one percent (0.40%)
of the aggregate dollar amount of capital stock sold in both the
subscription offering and community offering.
2. A commission equal to one and sixty-five one hundredths (1.65%) of the
aggregate dollar amount of capital stock sold in the subscription
offering, excluding any shares of conversion stock sold to the Bank's
directors, executive officers and the employee stock ownership plan.
Additionally, commissions will be excluded on those shares sold to
"associates" of the Bank's directors and executive officers. The term
"associates" as used herein shall have the same meaning as that found
in the Bank's Plan of Conversion.
3. A commission equal to one and sixty-five one hundredths (1.65%) of the
aggregate dollar amount of capital stock sold by Trident in the
community offering excluding shares sold by other NASD member firms
under selected dealer's agreements.
4. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee to be agreed upon
jointly by Trident and the Bank to reflect market requirements at the
time of the stock allocation in a Syndicated Community Offering.
5. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the
Bank and Trident.
6. Trident shall be reimbursed for allocable expenses incurred by them,
including legal fees, whether or not the Agreement is consummated.
Trident's out-of-pocket expenses will not exceed $7,500 and its legal
fees and expenses will not exceed $30,000. The Bank will forward to
Trident a check in the amount of $10,000 as an advance payment to
defray the allocable expenses of Trident.
It further is understood that the Bank will pay all other expenses of the
conversion including but not limited to its attorneys' fees, NASD filing fees,
and filing and registration fees and fees of either Trident's attorneys or the
attorneys relating to any required state securities law filings, telephone
charges, air freight, rental equipment, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
Trident understands that the Bank's board of directors has not adopted a plan of
conversion as of the date hereof. Accordingly, the board of directors has not
decided at this point whether a conversion will occur and information about the
possibility of a conversion is strictly confidential. The Bank may terminate
this engagement at any time upon written notice to
<PAGE>
Board of Directors
May, 20 1996
Page 3
Trident. In such event, Trident shall be entitled to receive the reasonable
value of its services rendered to the date of such termination.
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the Bank
warrants that: (a) the Bank has not privately placed any securities within the
last 18 months; (b) there have been no material dealings within the last 12
months between the Bank and any NASD member or any person related to or
associated with any such member; (c) none of the officers or directors of the
Bank has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with Trident, the Bank has no financial or management
consulting contracts outstanding with any other person; (e) the Bank has not
granted Trident a right of first refusal with respect to the underwriting of any
future offering of the Bank stock; and (f) there has been no intermediary
between Trident and the Bank in connection with the public offering of the
Bank's shares, and no person is being compensated in any manner for providing
such service.
The Bank agrees to indemnify and hold harmless Trident and each person, if any,
who controls the firm against all losses, claims, damages or liabilities, joint
or several and all legal or other expenses reasonably incurred by them in
connection with the investigation or defense thereof (collectively, "Losses"),
to which they may become subject under the securities laws or under the common
law, that arise out of or are based upon the conversion or the engagement
hereunder of Trident unless it is determined by final judgment of a court having
jurisdiction over the matter that such Losses are primarily a result of
Trident's gross negligence. If the foregoing indemnification is unavailable for
any reason, the Bank agrees to contribute to such Losses in the proportion that
its financial interest in the conversion bears to that of the indemnified
parties. If the Agreement is entered into with respect to the common stock to
be issued in the conversion, the Agreement will provide for indemnification,
which will be in addition to any rights that Trident or any other indemnified
party may have at common law or otherwise. The indemnification provision of
this paragraph will be superseded by the indemnification provisions of the
Agreement entered into by the Bank and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (6) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While Trident
and the Bank agree in principle to the contents hereof and propose to proceed
promptly, and in good faith, to work out the arrangements with respect to the
proposed offering, any legal obligations between Trident and the Bank shall be
only as set forth in a duly executed Agreement. Such Agreement shall be in form
and content satisfactory to Trident and the Bank, as well as their counsel, and
Trident's obligations thereunder shall be subject to, among other things, there
being in Trident's opinion no material adverse change in the condition or
obligations of the Bank or no market conditions which might render the sale of
the shares by the Bank hereby contemplated inadvisable.
<PAGE>
Board of Directors
May 20, 1996
Page 4
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter along with the advance payment of
$10,000. This proposal is open for your acceptance for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, INC.
By: /s/ R. Lee Burrows, Jr.
-----------------------------
R. Lee Burrows, Jr.
Managing Director
Agreed and accepted to this ______ day
of ________________, 1996
HOME SAVINGS BANK, SSB
By: /s/ Carl M. Hill
------------------------
Carl M. Hill
President
RLB/cs
2-20-1
<PAGE>
PLAN OF HOLDING COMPANY CONVERSION
OF
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
Albemarle, North Carolina
From Mutual to Stock Organization
I. General
On May 14, 1996, the Board of Directors of Home Savings Bank, S.S.B.,
Albemarle, North Carolina (the "Savings Bank") adopted this Plan of Holding
Company Conversion pursuant to which the Savings Bank will convert from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered capital
stock savings bank and simultaneously become a wholly-owned subsidiary of South
Street Financial Corp., a savings bank holding company organized under North
Carolina law.
This Plan is subject to the prior approval of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce, and must be
adopted by the affirmative vote of the members of the Savings Bank holding not
less than a majority of the total outstanding votes eligible to be cast. In
addition, in order to consummate the conversion herein described, this Plan must
be filed with the Federal Deposit Insurance Corporation ("FDIC") and must not
have been objected to by the FDIC in accordance with applicable FDIC
regulations.
II. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
A. Actual Purchase Price: The actual price per share, determined as
provided in Article VI hereof, at which the shares of common stock of the
Holding Company will be issued and sold by the Holding Company to subscribers.
B. Administrator: Administrator, Savings Institutions Division, North
Carolina Department of Commerce.
C. Affiliate: The term "affiliate" of, or a person "affiliated with," a
specified person, means a person that directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the person specified.
D. Aggregate Valuation Range: The range of value for the aggregate number
of shares of common stock of the Holding Company to be offered in the
Conversion, which range is established pursuant to Article VI hereof and which
shall be from a low of 15 percent below the estimated aggregate pro forma market
value of the Savings Bank and the Holding Company to a high of 15 percent above
the estimated aggregate pro forma market value of the Savings Bank and the
Holding Company, as such range may be amended from time to time by an
independent appraiser.
<PAGE>
E. Amended Charter: The Savings Bank's North Carolina stock savings bank
charter in the form permitted by the Administrator.
F. Applications: The Savings Bank's Application to Convert a Mutual
Savings Bank to a Stock Owned Savings Bank and the Holding Company's Acquisition
Application, including amendments thereto, as filed with the Administrator
pursuant to the Regulations.
G. Associate: The term "Associate," when used to indicate a
relationship with any Person, means (i) any corporation or organization (other
than the Savings Bank, the Holding Company or any of their majority-owned
subsidiaries) of which such Person is an officer or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of equity
securities, (ii) any trust or other estate in which such Person has a
substantial beneficial interest or as to which such Person serves as trustee or
in a similar fiduciary capacity, except for a tax-qualified employee stock
benefit plan or a charitable trust which is exempt from federal taxation
pursuant to Section 501(c)(3) of the Internal Revenue Code of 1986, as amended,
and (iii) any relative or spouse of such Person, or any relative of such spouse,
who has the same home as such Person or who is a director or officer of the
Savings Bank, the Holding Company, or any of their parents or subsidiaries.
H. Charter: The North Carolina mutual savings bank charter of Home
Savings Bank of Albemarle, S.S.B.
I. Community Offering: The offering for sale of shares of Conversion
Stock to the general public, subsequent to termination of the Subscription
Offering, with first priority given to natural persons and trusts of natural
persons residing in Stanly County and with second priority given to natural
persons and trusts of natural persons residing in Anson, Cabarrus, Montgomery,
Rowan and Union Counties, North Carolina (including Retirement Accounts
established for the benefit of natural persons who are residents of such area).
J. Conversion: The conversion of the Savings Bank to a North Carolina-
chartered stock savings bank, the deposit accounts of which will be insured by
the SAIF of the FDIC, pursuant to, and in accordance with, the Regulations, the
Plan and the Applications.
K. Conversion Stock: The shares of common stock of the Holding Company to
be issued and sold in the Conversion.
L. Converted Savings Bank: Home Savings Bank of Albemarle, Inc., S.S.B.,
the North Carolina capital stock savings bank resulting from the Conversion.
M. Directors: The Board of Directors of the Savings Bank, the Converted
Savings Bank or the Holding Company (as applicable).
N. Eligibility Record Date: The close of business on December 31, 1994.
O. Eligible Account Holder: The holder of a Qualifying Deposit on the
Eligibility Record Date, with the beneficial owner of a Retirement Account being
deemed the holder thereof.
2
<PAGE>
P. ESOP: The Savings Bank's tax-qualified Employee Stock Ownership Plan
adopted by the Board of Directors of the Savings Bank to be effective upon
consummation of the Conversion.
Q. Executive Officer: An officer of the Savings Bank, the Converted
Savings Bank or the Holding Company (as applicable) performing a policy-making
function for such entity.
R. FDIC: The Federal Deposit Insurance Corporation.
S. Federal Reserve Board: The Board of Governors of the Federal Reserve
System.
T. First Priority Community Subscribers: Natural persons and trusts of
natural persons residing in Stanly County, including Retirement Accounts
established for the benefit of natural persons residing in Stanly County.
U. Holding Company: The North Carolina corporation under the name of
South Street Financial Corp. which, upon completion of the Conversion, will
become a savings bank holding company owning all of the outstanding capital
stock of the Converted Savings Bank.
V. Liquidation Account: That account established by the Converted Savings
Bank pursuant to Article XI of this Plan.
W. Market Maker: A dealer (i.e., any person who engages directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system; or (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at its quoted prices with other brokers or dealers.
X. Maximum Shares: The number of shares of Conversion Stock which would
be issued at the maximum of the Aggregate Valuation Range as set forth in the
Prospectus.
Y. Members: All persons or entities who qualify as members of the Savings
Bank pursuant to its Charter and bylaws prior to the Conversion, including
beneficial owners of Retirement Accounts at the Savings Bank.
Z. Notice: The Savings Bank's Notice of Intent to Convert to Stock Form,
including amendments thereto, as filed with the FDIC pursuant to 12 C.F.R. Part
303.
AA. Order Forms: The order forms to be used to subscribe for Conversion
Stock in the Subscription and Community Offerings pursuant to the Plan.
BB. Other Members: The following as of the Voting Record Date: (1)
holders of Savings Accounts at the Savings Bank (other than Eligible Account
Holders and Supplemental Eligible Account Holders), with the beneficial owners
of Retirement Accounts being deemed the holders of such accounts, and (2) those
Persons or entities (other than Eligible Account Holders and Supplemental
Eligible
3
<PAGE>
Account Holders) who are borrowers from the Savings Bank whose borrowings are
still in existence as of the Voting Record Date.
CC. Person: An individual, a corporation, a partnership, an association,
a joint stock company, a trust, an unincorporated organization, or a government
or political subdivision thereof.
DD. Plan: This Plan of Holding Company Conversion and any duly adopted
amendments thereto.
EE. Prospectus: The document containing information about and a
description of the Savings Bank, the Holding Company, this Plan and the process
of issuing the Conversion Stock, which may be combined with proxy statements for
the Members and distributed in the Subscription Offering and which may be
distributed to the general public in the Community Offering and Syndicated
Community Offering.
FF. Proxy Statement: The written information distributed by the Savings
Bank to the Members in its solicitation of their votes in connection with
consideration of the Plan at the Special Meeting, which written information may
be in summary form.
GG. Qualifying Deposit: A balance of $50 or more in any Savings Account
in the Savings Bank as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable. Each deposit account which is deemed to
be a separate account for purposes of FDIC insurance shall be deemed to be a
separate account for purposes of determining whether a Qualifying Deposit
exists.
HH. Regulations: The Rules and Regulations of the Administrator set
forth in North Carolina Administrative Code Title 4, Chapter 16, Subchapter 16G.
II. Retirement Accounts: Individual retirement accounts, Keogh savings
accounts or similar retirement accounts.
JJ. SAIF: The Savings Association Insurance Fund of the FDIC.
KK. Savings Accounts: Withdrawable deposits, certificates or other
savings and deposit accounts of the Savings Bank, including money market deposit
accounts and negotiable order of withdrawal accounts, held by Members. Each
such deposit, certificate or other deposit account which is deemed to be a
separate account for FDIC insurance shall be deemed to be a separate Savings
Account for purposes of the Plan.
LL. Savings Bank: Home Savings Bank of Albemarle, S.S.B., a North
Carolina-chartered mutual savings bank.
MM. SEC: The Securities and Exchange Commission.
4
<PAGE>
NN. Second Priority Community Offering: Natural persons and trusts of
natural persons residing in Anson, Cabarrus, Montgomery, Rowan and Union
Counties, North Carolina including Retirement Accounts established for the
benefit of natural persons residing in such Counties.
OO. Special Meeting: The Special Meeting of Members called for the
purpose of considering approval of the Plan.
PP. Subscription Offering: The offering of shares of Conversion Stock to
Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders, Other
Members, and Directors, officers and employees of the Savings Bank pursuant to
the Plan.
QQ. Subscription Rights: Non-transferable, non-negotiable, personal
rights distributed, without payment, to Eligible Account Holders, the ESOP,
Supplemental Eligible Account Holders, Other Members, and Directors, officers
and employees of the Savings Bank to subscribe for shares of Conversion Stock in
the Subscription Offering pursuant to the Plan.
RR. Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding the approval of the Applications by the Administrator which
ends at least fifteen (15) days prior to such approval if the establishment of
such date is required by the Regulations.
SS. Supplemental Eligible Account Holder: The holder of a Qualifying
Deposit (other than an Executive Officer or Director of the Savings Bank or any
Associate of such Person), on the Supplemental Eligibility Record Date, with the
beneficial owner of a Retirement Account being deemed the holder thereof.
TT. Surrounding Counties: Anson, Cabarrus, Montgomery, Rowan and Union
Counties, North Carolina.
UU. Syndicated Community Offering: The offering for sale of shares of
Conversion Stock to the general public through a syndicate of registered broker-
dealers to be formed and managed by the sales agent in the Subscription Offering
and Community Offering.
VV. Voting Record Date: The date fixed by the Board of Directors of the
Savings Bank for determining Members entitled to vote at the Special Meeting.
III. Steps Prior to Submission of Plan of Conversion to the Members for
Approval
Prior to submission of the Plan to the Members of the Savings Bank for
approval, the Savings Bank must receive the Administrator's approval of the
Applications and the FDIC must have manifested to the Savings Bank a conditional
intention to issue a final notice of non-objection or the time period for FDIC
review and objection shall have expired without objection by the FDIC. The
following steps must be taken prior to such regulatory approvals:
A. The Board of Directors of the Savings Bank shall adopt and approve the
Plan by the affirmative vote of not less than two-thirds of its members.
5
<PAGE>
B. The Savings Bank shall notify its members of the adoption of the Plan
by publishing a statement in a newspaper having a general circulation in the
communities in which the Savings Bank maintains offices or by mailing a letter
to each of its Members.
C. Copies of the Plan shall be made available for inspection at each
office of the Savings Bank.
D. The Holding Company shall submit an application to the Federal Reserve
Board pursuant to Federal law for permission to become a savings bank holding
company in order to enable it to acquire 100% of the capital stock of the
Converted Savings Bank, and such application shall be approved and any required
waiting period shall have expired.
E. The Savings Bank shall submit the requisite number of copies of the
Applications to the Administrator and the requisite number of copies of the
Notice to the FDIC. Upon receipt of advice from the Administrator that the
Applications have been received, are properly executed and not materially
incomplete, the Savings Bank shall publish a "Notice of Filing of an Application
for Holding Company Conversion" in a newspaper of general circulation in each
community in which the Savings Bank maintains an office. The Savings Bank also
shall prominently display a copy of such notice in each of its offices.
F. The Savings Bank shall obtain an opinion of counsel or tax advisor or a
favorable ruling from the Internal Revenue Service to the effect that the
Conversion of the Savings Bank from a North Carolina-chartered mutual savings
bank to a North Carolina-chartered capital stock savings bank, the sale of the
Conversion Stock to subscribers in the Subscription, Community and Syndicated
Community Offerings and the issuance of the shares of common stock of the
Converted Savings Bank to the Holding Company, all in accordance with the terms
of the Plan, should not result in any gain or loss for federal or North Carolina
income tax purposes, to the Savings Bank, the Converted Savings Bank, the
Holding Company or the Members of the Savings Bank. Receipt of a favorable
opinion or ruling is a condition precedent to completion of the Conversion.
G. The Holding Company shall file a registration statement with the SEC
with respect to the Conversion Stock to be offered pursuant to the Plan and such
registration statement shall be declared effective.
IV. Meeting of Members
Upon receipt of Administrator approval of the Applications 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, a Special Meeting of the Members of the Savings
Bank shall be scheduled in accordance with the Savings Bank's bylaws for the
purpose of voting on approval of the Plan. Promptly after receipt of
Administrator approval and at least 20 days, but not more than 45 days, prior to
the Special Meeting, the Savings Bank will distribute proxy solicitation
materials to all Members as of the Voting Record Date. The proxy materials will
include the Proxy Statement and the Prospectus and other documents authorized
for use by the regulatory
6
<PAGE>
authorities and may also include a copy of the Plan, the Amended Charter and
other materials as provided in Article VII hereof.
At the Special Meeting, an affirmative vote of not less than a majority of
the total votes entitled to be cast by the Savings Bank's Members will be
required for approval of the Plan. Voting may be in person or by proxy. The
Administrator shall be promptly notified of the results of the vote of the
Members at the Special Meeting.
V. Procedure
The Conversion Stock shall be offered for sale in the Subscription Offering
to Eligible Account Holders, the ESOP, Supplemental Eligible Account Holders,
Other Members, and Directors, officers and employees of the Savings Bank. The
Subscription Offering may commence concurrently with or during the solicitation
of proxies for the Special Meeting. The Community Offering may commence at any
time following commencement of the Subscription Offering. The Syndicated
Community Offering, if any, may commence concurrently with or during the
Community Offering or as promptly thereafter as is practicable. The
Subscription Offering may be closed 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 period for the Subscription Offering shall not be less than 20 days nor
more than 45 days, unless extended by the Savings Bank and the Holding Company.
Any unsubscribed shares of Conversion Stock are to be offered for sale to the
general public in the Community Offering with first priority being given to
natural persons and trusts of natural persons residing in Stanly County, and
second priority being given to natural persons and trusts of natural persons
residing in the Surrounding Counties, including Retirement Accounts established
for the benefit of natural persons who reside in such area. The Community
Offering may commence, subject to the availability of shares, at any time
following commencement of the Subscription Offering. Any shares of Conversion
Stock offered but not subscribed for in the Subscription and Community Offerings
may, in the discretion of the Savings Bank and the Holding Company, be offered
for sale in the Syndicated Community Offering. Completion of the sale of all
shares of Conversion Stock not sold in the Subscription Offering shall occur
within 45 days after termination of the Subscription Offering, subject to
extension of such 45-day period by the Savings Bank and the Holding Company with
the approval of the Administrator. The Boards of Directors of the Savings Bank
and the Holding Company may seek one or more extensions of such 45-day period if
necessary to complete the sale of all shares of Conversion Stock. In connection
with any such extension, subscribers shall be permitted to increase, decrease or
rescind their subscriptions to the extent required by the Administrator in
approving the extensions. As provided in Article XIII hereof, completion of the
sale of all shares of Conversion Stock must occur in any event within 24 months
after the date of the Special Meeting.
7
<PAGE>
VI. Stock Offering
A. Purchase Price and Number of Shares of Conversion Stock
-------------------------------------------------------
The total number of shares and the subscription price per share of the
Conversion Stock being issued and sold by the Holding Company in the Conversion
will be determined by the Holding Company. The aggregate purchase price at which
all shares of the Conversion Stock will be sold in the Conversion will be based
upon the aggregate pro forma market value of the Converted Savings Bank and the
Holding Company after giving effect to the issuance of the Conversion Stock, as
determined by an independent appraisal. The aggregate purchase price will be
within the Aggregate Valuation Range as stated in the approval or amended
approval of the Plan by the Administrator; provided, however, that with the
consent of the Administrator and the FDIC, the aggregate purchase price of the
Conversion Stock sold may be increased to up to 15% above the maximum of the
Aggregate Valuation Range, without any 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. The appraisal will be made by an investment banking or financial
consulting firm selected by the Savings Bank and which is experienced and expert
in the area of savings institution appraisals. Such appraisal will be updated
prior to the commencement of the Subscription Offering, if necessary, and will
be further updated upon completion of the later of the Subscription Offering,
the Community Offering or the Syndicated Community Offering.
The Actual Purchase Price per share at which the Conversion Stock will be
offered to subscribers in the Subscription, Community and Syndicated Community
Offerings will be determined by the Holding Company immediately prior to the
commencement of the Subscription Offering. All shares of Conversion Stock sold
in the Conversion will be sold at the same price per share.
B. Method of Offering Shares
-------------------------
On the date Order Forms are mailed, Subscription Rights to purchase shares
will be issued at no cost to Eligible Account Holders, the ESOP, Supplemental
Eligible Account Holders (if applicable), Other Members, and Directors, officers
and employees of the Savings Bank pursuant to priorities established by this
Plan and the Regulations. With respect to Eligible Account Holders,
Supplemental Eligible Account Holders and Voting Members who are beneficial
owners of Retirement Accounts, such persons have the right to exercise
Subscription Rights only to the extent Subscription Rights granted with respect
to such Retirement Accounts are not exercised directly by such Retirement
Accounts. Each subscriber shall purchase the number of whole shares indicated
on the Order Form of such subscriber, subject to the purchase limitations set
forth herein, and any excess amounts shall be refunded. To the extent that
shares are available, no subscriber will be allowed to purchase Conversion Stock
having an aggregate purchase price of less than $500.
8
<PAGE>
The priorities established by applicable Regulations for the purchase of
shares are as follows:
1. Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive, without payment, Subscription
Rights to purchase an amount of Conversion Stock equal to the maximum purchase
limitation set forth in Section D.1 of this Article. Subscription Rights of
Eligible Account Holders shall be superior to all other Subscription Rights
granted in the Conversion. Notwithstanding the foregoing, as set forth in
Section B.2 of this Article, Subscription Rights of Eligible Account Holders
shall be subordinated to the prior rights of the ESOP to purchase shares offered
in excess of the Maximum Shares. In the event of an oversubscription for the
Conversion Stock among Eligible Account Holders, shares shall be allocated among
Eligible Account Holders as follows. The Conversion Stock shall be allocated
among subscribing Eligible Account Holders so as to permit each such Eligible
Account Holder, to the extent possible, to purchase the lesser of (a) the number
of shares for which such Eligible Account Holder subscribed, or (b) 100 shares.
Any shares remaining after that allocation shall be allocated among subscribing
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of Qualifying Deposits of each such Eligible Account
Holder bears to the total amount of Qualifying Deposits of all Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for by any one or more Eligible Account Holders,
the excess shall be reallocated (one or more times as necessary) among those
Eligible Account Holders whose subscriptions are still not fully satisfied on
the same principle described above until all available shares have been
allocated or all subscriptions satisfied. All computations shall be rounded
down to the nearest whole share.
2. Category No. 2: ESOP
The ESOP shall receive, without payment, Subscription Rights to purchase a
number of shares of Conversion Stock equal to eight percent (8%) of the total
number of shares of Conversion Stock offered and sold in the Conversion.
Subscription Rights received pursuant to this Category shall be subordinated to
all Subscription Rights received pursuant to Category No. 1 above.
Notwithstanding the foregoing, in the event that the number of shares issued in
the Conversion exceeds the Maximum Shares, the ESOP shall have the first
priority right to purchase any shares issued exceeding the Maximum Shares up to
an aggregate of eight percent (8%) of the total number of shares offered and
sold in the Conversion. In the event there is an oversubscription of shares of
Conversion Stock and, as a result, the ESOP is unable to purchase in the
Conversion eight percent (8%) of the total number of shares offered and sold in
the Conversion, then the Board of Directors of the Holding Company intends to,
and shall be authorized to, approve the purchase by the ESOP in the open market
after the Conversion, of such shares as are necessary for the ESOP to purchase a
number of shares equal to eight percent (8%) of the total number of shares of
Conversion Stock issued in the Conversion. Any such purchases made by the ESOP
may be purchased with funds borrowed by the ESOP from the Holding Company.
3. Category No. 3: Supplemental Eligible Account Holders
In the event that the Eligibility Record Date is more than 15 months prior
to the date of the latest amendment of the Applications filed prior to
Administrator approval, then, and only in that event, each
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Supplemental Eligible Account Holder of the Savings Bank shall receive, without
payment, Subscription Rights to purchase an amount of Conversion Stock equal to
the maximum purchase limitation set forth in Section D.1 of this Article.
Subscription Rights received pursuant to this Category shall be subordinated to
all Subscription Rights received pursuant to Category Nos. 1 and 2. Any
Subscription Rights received by an Eligible Account Holder in accordance with
Category No. 1 shall reduce, to the extent thereof, the Subscription Rights to
be distributed to such account holder pursuant to this Category.
In the event of an oversubscription for the Conversion Stock, shares shall
be allocated among the Supplemental Eligible Account Holders as follows. The
Conversion Stock shall be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each such Supplemental Eligible Account Holder,
to the extent possible, to purchase the lesser of (including the number of
shares, if any allocated in accordance with Category No. 1) (a) the number of
shares for which such Supplemental Eligible Account Holder subscribed, or (b)
100 shares. Any shares remaining after that allocation shall be allocated among
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposits of each
such Supplemental Eligible Account Holder bears to the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Supplemental Eligible Account Holders, the
excess shall be reallocated (one or more times as necessary) among those
Supplemental Eligible Account Holders whose subscriptions are still not fully
satisfied on the same principle described above until all available shares have
been allocated or all subscriptions satisfied. All computations shall be
rounded down to the nearest whole share.
4. Category No. 4: Other Members
Each Other Member shall receive, without payment, Subscription Rights to
purchase an amount of Conversion Stock equal to the maximum purchase limitation
set forth in Section D.1 of this Article. Subscription Rights received pursuant
to this Category shall be subordinated to all Subscription Rights received
pursuant to Category Nos. 1-3.
In the event of an oversubscription for shares of Conversion Stock under
this Category, the Conversion Stock available shall be allocated among the
subscribing Other Members whose subscriptions are not satisfied in the
proportion that the number of votes eligible to be cast by each such Other
Member at the Special Meeting bears to the total number of votes eligible to be
cast by all Other Members whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more Other Member,
the excess shall be reallocated (one or more times as necessary) among those
Other Members whose subscriptions are still not satisfied on the same principle
described above until all available shares have been allocated or all
subscriptions satisfied. All computations shall be rounded down to the nearest
whole share.
5. Category No. 5: Directors, Officers and Employees
Each Director and officer of the Savings Bank, and each employee of the
Savings Bank, as of the date of the commencement of the Subscription Offering
shall receive, without payment, Subscription Rights to purchase an amount of
Conversion Stock equal to the maximum purchase limitation set forth
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in Section D.1 of this Article. Subscription Rights received pursuant to this
Category shall be subordinated to all Subscription Rights received pursuant to
Category Nos. 1-4. Any Subscription Rights received by a Director, officer or
employee in accordance with Category Nos. 1, 3, or 4 shall reduce, to the extent
thereof, the Subscription Rights to be distributed to such Director, officer or
employee pursuant to this Category.
In the event of an oversubscription for shares of Conversion Stock under
this Category, the shares available shall be allocated among the subscribing
Directors, officers and employees of the Savings Bank whose subscriptions are
not satisfied pro rata on the basis of the amounts of their respective
subscriptions. All computations shall be rounded down to the nearest whole
share.
6. Category No. 6: Community Offering
Any shares of Conversion Stock not purchased through the exercise of
Subscription Rights received pursuant to Category Nos. 1-5 above may be sold to
the general public in a Community Offering. The Community Offering may
commence, subject to the availability of shares, at any time following
commencement of the Subscription Offering and may terminate at any time
thereafter. The Community Offering must be completed within 45 days after the
last day of the Subscription Offering, unless extended by the Savings Bank and
the Holding Company with the approval of the Administrator.
The Savings Bank and the Holding Company may accept or reject, in whole or
in part, orders received in the Community Offering in their sole discretion.
In the event that subscriptions by subscribers in the Community Offering
whose orders would otherwise be accepted exceed the shares available for
purchase in the Community Offering, then
(i) subscriptions of First Priority Community Subscribers will be filled in
full up to applicable purchase limitations (to the extent such subscriptions are
not rejected by the Savings Bank and the Holding Company),
(ii) then subscriptions of Second Priority Community Subscribers will be
filled up to applicable purchase limitations (to the extent such subscriptions
are not rejected by the Savings Bank and the Holding Company).
In the event of an oversubscription by First Priority Community Subscribers
whose orders would otherwise be accepted, shares of Conversion Stock will be
allocated first to each First Priority Community Subscriber whose order is
accepted in full or in part by the Savings Bank and the Holding Company in the
entire amount of such order up to a number of shares which has an aggregate
purchase price of not more than $400,000, which aggregate purchase price shall
be determined by the Board of Directors of the Savings Bank prior to the time
the Conversion is consummated with the intent to provide for a wide distribution
of shares among such subscribers. Any shares remaining after such allocation
will be allocated to each First Priority Community Subscriber whose order is
accepted in full or in part on an equal number of shares basis until all orders
are filled. Such allocation shall also be applied to subscriptions by Second
Priority Community Subscribers, in the event shares are available for
subscribers in such category but there is an oversubscription within such
category. All computations
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shall be rounded down to the nearest whole share. No Person, directly or
indirectly or with an Associate or a group acting in concert, may subscribe for
or purchase more than the amount equal to the maximum purchase limitations set
forth in Section D.1 of this Article.
The Conversion Stock to be offered in this Category No. 6 will be offered
and sold in a manner that will achieve the widest distribution of such stock.
7. Category No. 7: Syndicated Community Offering
If necessary, all shares of Conversion Stock not purchased in the
Subscription and Community Offerings, if any, may, at the option of the Savings
Bank and Holding Company, be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
as selected dealers to be formed and managed by the sales agent in the
Subscription and Community Offerings. The Holding Company and Savings Bank have
the right to reject orders, in whole or part, in their sole discretion in the
Syndicated Community Offering. During the Syndicated Community Offering, shares
of Conversion Stock will be sold subject to such conditions, terms and
procedures as may be determined by the Holding Company and the Savings Bank.
Shares of Conversion Stock sold in the Syndicated Community Offering will be
sold in a manner calculated to achieve the widest distribution of Conversion
Stock.
The Syndicated Community Offering may close as early as the Community
Offering, or thereafter at the discretion of the Savings Bank and the Holding
Company. The Syndicated Community Offering may run concurrently with the
Community Offering or subsequent to such offering.
D. Additional Limitations Upon Purchases of Shares of Conversion Stock
The following additional limitations and exceptions shall apply to all
purchases of Conversion Stock in the Conversion:
1. The aggregate purchase price of shares of Conversion Stock purchased by
any Person (or Persons exercising Subscription Rights through a single account),
or a group of Persons acting in concert, shall not exceed $400,000 (which limit
may be decreased or increased by the Board of Directors of the Savings Bank in
accordance with Section D.4 of this Article); provided, however, that the ESOP
may purchase in the aggregate a number of shares equal to not more than eight
percent (8%) of the total number of shares of Conversion Stock offered and sold
in the Conversion. Any shares held by the ESOP and attributed to a natural
person shall not be aggregated with other shares purchased directly by or
otherwise attributable to that natural person.
2. The Boards of Directors of the Savings Bank and Holding Company will
not be deemed to be Associates or a group acting in concert solely as a result
of membership on the Boards of Directors.
3. To the extent that Conversion Stock is available, no subscriber will be
allowed to purchase Conversion Stock having an aggregate purchase price of less
than $500.
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4. Either before or subsequent to approval of the Plan by the Members and
prior to consummation of the sale of the Conversion Stock, the Board of
Directors of the Savings Bank may, in its sole discretion, (i) increase the
maximum purchase price limitation set forth in Section D.1 of this Article to an
amount not greater than the aggregate purchase price that would be paid for five
percent (5%) of total number of shares of Conversion Stock offered and sold in
the Conversion or (ii) decrease such maximum purchase price limitation to an
amount not less than the aggregate purchase price that would be paid for one
percent (1%) of the total number of shares of Conversion Stock offered and sold
in the Conversion, each without further approval of the Members.
5. 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.
6. Subscription Rights to purchase the Conversion Stock received by
Executive Officers and Directors of the Savings Bank and their Associates, 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 to purchase the Conversion Stock
pursuant to Category No. 1.
7. Notwithstanding anything in Sections D.1 and D.4 of this Article to the
contrary, no Person together with all Associates thereof, or group of Persons
acting in concert, shall purchase more than 100,000 shares of Conversion Stock
(which limit may be increased or decreased by the Board of Directors of the
Savings Bank in accordance with Section D.4 of this Article).
E. Restrictions on and Other Characteristics of Stock Being Sold
1. Transferability. Conversion Stock purchased by Directors or Executive
---------------
Officers of the Converted Savings Bank shall not be sold or otherwise disposed
of for value for a period of not less than one year from the date of purchase
without written permission of the Administrator, except for any disposition of
such shares following the death of the original purchaser.
The Conversion Stock issued by the Holding Company to Directors and
Executive Officers of the Converted Savings Bank shall bear a legend giving
appropriate notice of the one-year holding period restriction. This legend will
state as follows:
The shares of stock evidenced by this Certificate may not be sold, except
in the event of the death of the registered holder, for a period of one
year from the date of this certificate without the prior written consent of
the Administrator, Savings Institutions Division, North Carolina Department
of Commerce.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent with respect to the applicable restrictions relating to the
transfer of restricted stock. Any shares 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 Directors and
Executive Officers of the Converted Savings Bank as may be then applicable to
such restricted stock.
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No Director, Executive Officer or Associate of a Director or Executive
Officer of the Converted Savings Bank shall purchase any outstanding shares of
common stock of the Holding Company for a period of three years following the
Conversion without the prior written approval of the Administrator, except (a)
through a broker or dealer registered with the SEC or the Secretary of State of
North Carolina or (b) in a "negotiated transaction" involving more than one
percent of the then outstanding shares of capital stock of the Holding Company
or (c) through the purchase of common stock made by and held by one or more tax-
qualified or non-tax-qualified employee stock benefit plans of the Converted
Savings Bank or the Holding Company which may be attributable to Executive
Officers or Directors. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any Person acting on his or her behalf and the purchaser or his or her
investment representative. The term "investment representative" shall mean a
professional investment advisor acting as agent for the purchaser and
independent of the seller and not acting on behalf of the seller in connection
with the transaction.
2. Repurchase and Dividend Rights. Subject to the Regulations and
regulations of the FDIC, the Converted Savings Bank may not declare or pay a
cash dividend on or repurchase any of its capital stock if the effect thereof
would cause the regulatory capital of the Converted Savings Bank to be reduced
below (a) the amount required for the Liquidation Account or (b) the net worth
requirements of the Administrator or the minimum capital requirements of the
FDIC. As set forth in the Regulations and regulations of the FDIC, there exist
additional limitations on the ability of the Converted Savings Bank to pay
dividends and repurchase stock without the written approval of the Administrator
and the FDIC.
The above limitations shall not preclude payments of dividends or
repurchases of capital stock by the Converted Savings Bank or the Holding
Company in the event applicable federal or state regulatory limitations are
liberalized subsequent to the Conversion.
3. Voting Rights. After the Conversion, holders of Savings Accounts and
obligors on loans will not have voting rights in the Converted Savings Bank.
Exclusive voting rights shall be vested in the Holding Company as the owner of
all of the capital stock of the Converted Savings Bank. Each holder of common
stock of the Holding Company will be entitled to vote on any matter coming
before the stockholders of the Holding Company for consideration and will be
entitled to one vote for each share of common stock of the Holding Company owned
by such stockholder.
4. Preemptive Rights. Holders of common stock of the Holding Company
shall not have preemptive rights to acquire additional or treasury shares of the
Holding Company. Holders of common stock of the Converted Savings Bank shall
not have preemptive rights to acquire additional or treasury shares of the
Savings Bank.
F. Mailing of Offering Materials and Collation of Subscriptions
After (i) approval of the Plan by the Administrator, (ii) receipt of
conditional notification from the FDIC that it does not intend to object to the
Conversion or expiration of the time period for FDIC review and objection
without receipt of an objection from the FDIC and (iii) the SEC's declaration of
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<PAGE>
the effectiveness of the registration statement containing the Prospectus, the
Holding Company shall distribute the Prospectus and Order Forms for the purchase
of shares to holders of Subscription Rights in accordance with the terms of the
Plan.
As set forth in the Prospectus, each such recipient of an Order Form will
be given a period of not less than 20 days nor more than 45 days from the date
of mailing, unless extended, to properly complete, execute and return the Order
Form to the Savings Bank on behalf of the Holding Company. Self-addressed,
postage-paid return envelopes will accompany these forms when mailed. The
Savings Bank will collate the returned executed forms upon completion of the
subscription period. Failure of any eligible subscriber in the Subscription or
Community Offerings to return a properly completed and executed Order Form with
full payment for all shares subscribed for within the prescribed time limits
shall be deemed a waiver and a release by such person of any rights to purchase
shares hereunder.
The Savings Bank may require a Person to provide evidence satisfactory to
the Savings Bank that such Person qualifies as an Eligible Account Holder,
Supplemental Eligible Account Holder, Other Member, or First Priority Community
Subscriber, as the case may be. All determinations as to whether a Person
qualifies to purchase in a particular category shall be made by the Savings Bank
in its sole discretion and shall be final and conclusive.
If the Board of Directors of the Savings Bank determines that a subscriber
(i) has submitted false or misleading information on an Order Form or otherwise,
(ii) has attempted to purchase shares of Conversion Stock in violation of
provisions of this Plan or applicable law or (iii) has failed to cooperate with
attempts by the Savings Bank, its employees or agents to verify information with
respect to purchase rights, such Board of Directors may reject the order of such
subscriber.
G. Method of Payment
Payment for all shares of Conversion Stock subscribed for in the
Subscription and Community Offerings may be made in cash, if delivered in
person, by check or money order, or if the subscriber has a Savings Account
(other than a demand deposit or NOW account), by withdrawal authorization from
the Savings Account for the purchase amount. Unless payment is to be made by
withdrawal from a Savings Account, it shall accompany the Order Forms.
Notwithstanding the foregoing, the ESOP shall not be required to make payment
for shares subscribed for until the date set for consummation of the Conversion,
provided that at the time the ESOP submits its order form, it has obtained a
commitment from the Holding Company or an independent third party lender to loan
the ESOP the funds necessary to satisfy its order.
If a subscriber authorizes the withdrawal from his or her Savings Account,
the funds may be withdrawn from the subscriber's Savings Account at any time
after receipt of the subscriber's stock order form and will continue to earn
interest at the applicable rate for such Savings Account until the Conversion is
completed or terminated. The withdrawal will be given effect only to the extent
necessary to satisfy the subscription at a price equal to the aggregate Actual
Purchase Price of the Conversion Stock sold to the subscriber. The Savings Bank
will allow subscribers to purchase shares of Conversion Stock by withdrawing
funds from certificate accounts without the assessment of early withdrawal
penalties. In the case of early withdrawal of only a portion of such account,
the certificate evidencing
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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 will earn interest at the passbook savings 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.
A subscriber who is the beneficial owner of a Retirement Account may pay
for shares of Conversion Stock subscribed for by authorizing and directing the
Savings Bank on the Order Form to roll over the subscriber's Retirement Account
to a self-directed Retirement Account at an independent trustee, who shall then
be directed to make a withdrawal from such Retirement Account in an amount equal
to the Actual Purchase Price of such shares. Such shares shall then become part
of the Retirement Account estate.
All amounts received for the purchase of Conversion Stock in the
Subscription Offering and the Community Offering (other than by charge against
the Subscriber's account or as provided above) shall be placed in a special
escrow account with the Savings Bank. The Savings Bank shall pay interest to
the subscriber at the passbook savings rate on such amounts paid to purchase
Conversion Stock from the date payment is received until the Conversion is
completed or terminated, as the case may be. The Savings Bank shall deliver
all amounts received for the purchase of Conversion Stock in the Subscription
Offering and the Community Offering to the Holding Company on the date the
Conversion is consummated.
H. Undelivered, Defective or Late Order Forms: Insufficient Payment
If an Order Form in the Subscription or Community Offering (a) is not
delivered and is returned by the United States Postal Service (or the Savings
Bank is unable to locate the addressee); (b) is not received by the Savings Bank
or is received by the Savings Bank after the date specified for receipt therein;
(c) is defectively completed or executed; (d) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for (including
cases in which the subscriber's Savings Account is insufficient to cover the
amount of such required payment pursuant to a withdrawal authorization) or (e)
is not accompanied by immediately available funds, the Subscription Rights and
other rights to purchase of the person to whom such rights have been granted
will be deemed waived and will not be honored. The Savings Bank may, but will
not be required to, waive any irregularity relating to any Order Form or require
the submission of a corrected Order Form or the remittance of full payment for
subscribed shares by such date as the Savings Bank may specify. Subscription
orders, once tendered, cannot be revoked. The Savings Bank's interpretation of
the terms and conditions of this Plan and acceptability of the Order Forms will
be final.
I. Members in Non-Qualified States or in Foreign Countries
The Holding Company will make reasonable efforts to comply with the
securities laws of all states of the United States in which Eligible Account
Holders, Supplemental Eligible Account Holders, or Other Members entitled to
subscribe for shares of Conversion Stock reside. However, the Holding Company
shall not elect to offer or sell shares of Conversion Stock or Subscription
Rights under the Plan of Conversion in a foreign country, and may elect not to
offer or sell shares of Conversion Stock or Subscription Rights in a state in
the United States (i) where a small number of persons otherwise
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<PAGE>
eligible to subscribe for shares under this Plan reside or (ii) if the Holding
Company 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 requirement that the Holding Company, the Savings Bank or any employee or
representative thereof register as a broker, dealer, agent or salesperson or
register or otherwise qualify the Subscription Rights or Conversion Stock for
sale in such state. No payments will be made in lieu of the granting of
Subscription Rights to persons residing in such jurisdictions.
J. Acquisition of Capital Stock of the Converted Savings Bank
One half of the net proceeds from the sale of the Conversion Stock
(reduced by the amount of any loan made by the Holding Company to the ESOP),
will be used by the Holding Company to purchase all of the outstanding capital
stock of the Converted Savings Bank.
VII. Amended Charter and Bylaws
As part of the Conversion and this Plan, the Amended Charter and new
bylaws of the Converted Savings Bank will be adopted to authorize the Converted
Savings Bank to operate as a North Carolina capital stock savings bank under the
name Home Savings Bank, Inc., S.S.B. The Amended Charter and bylaws for the
Converted Savings Bank are attached hereto as Annex I and Annex II,
respectively. By approving the Plan, the Members will thereby approve the
Amended Charter and bylaws. Accordingly, the Amended Charter and bylaws may be
amended in the same manner as the Plan pursuant to Article XIII.
VIII. Consummation of Conversion
After approval of the Plan by the Members, completion of the issuance and
sale of the Conversion Stock, and provided the Amended Charter and new bylaws
have been filed with and approved by the Administrator, the Conversion will
become effective. The effective time of such Conversion will be the date of
completion of such issuance and sale unless a later date is specified by the
Savings Bank. The Conversion shall constitute a change of form of organization
of the Savings Bank and shall not impair or affect any contracts, rights,
liabilities, obligations, interest and relations of whatever kind of the Savings
Bank.
The Conversion of the Savings Bank from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered capital stock savings bank shall be
deemed to be an extension of the corporate existence of the Savings Bank, and
all property of the Savings Bank including all its rights, title and interest in
and to all property of whatever kind, whether real, personal or mixed, and
things in action, and every right, privilege, interest and asset of any
conceivable value or benefit then existing, belonging or pertaining to it, or
which would inure to it, shall immediately by act of law and without any
conveyance or transfer, and without any further act or deed, be vested in and
become the property of the Converted Savings Bank, which shall have, hold and
enjoy the same in its own right as fully and to the same extent as the same was
possessed, held and enjoyed by the Savings Bank, and the Converted Savings Bank
shall succeed to all the rights, obligations and relations of the Savings Bank.
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IX. Registration and Market Making
Upon completion of the Conversion, the Conversion Stock will be registered
with the SEC pursuant to the Securities Exchange Act of 1934, as amended. In
connection with the registration, the Holding Company hereby undertakes not to
deregister such stock for a period of three years thereafter.
The Holding Company will use its best efforts to encourage and assist a
Market Maker to establish and maintain a market for the shares of the Conversion
Stock. The Holding Company will also use its best efforts to list the
Conversion Stock on a national or regional securities exchange or on the
National Association of Securities Dealers Inc. Automated Quotation System.
X. Status of Savings Accounts and Loans Subsequent to Conversion
All Savings Accounts will retain the same status after Conversion as these
accounts had prior to Conversion. Each Savings Account holder shall retain,
without payment, a Savings Account or Accounts in the Converted Savings Bank,
equal in amount to the withdrawable value of such account holder's Savings
Account or Accounts in the Savings Bank prior to Conversion. All Savings
Accounts will continue to be insured by the SAIF of the FDIC up to the
applicable limits of insurance coverage. All loans shall retain the same status
after Conversion as such loans had prior to Conversion.
XI. Liquidation Account
After the Conversion, holders of Savings Accounts and borrowers will not
have voting rights in the Converted Savings Bank and will not be entitled to
share in the residual assets after liquidation of the Converted Savings Bank.
However, pursuant to the Regulations, the Savings Bank shall, at the time of
Conversion, establish a Liquidation Account on the records of the Converted
Savings Bank in an amount equal to its total regulatory capital as of the date
of the latest statement of financial condition contained in the final Prospectus
used in connection with the Conversion or such other amount as shall be required
by the Regulations. The function of the Liquidation Account is to establish a
priority on liquidation and, except as provided in Article VI.E.2 above, the
existence of the Liquidation Account shall not operate to restrict the use or
applications of any of the net worth, regulatory capital or other accounts of
the Converted Savings Bank.
The Liquidation Account shall be maintained by the Converted Saving Bank
subsequent to Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders (as applicable) who maintain 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 (the "subaccount balance").
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 total opening balance in the Liquidation Account by a fraction,
of which the numerator is the amount of the Qualifying Deposits in the related
Savings Account on the Eligibility Record Date or the Supplemental Eligibility
Record Date (as applicable) and of which the denominator is the total amount of
all Qualifying Deposits of all
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Eligible Account Holders or Supplemental Eligible Account Holders (as
applicable) on such dates. Each such initial subaccount balance in the
Liquidation Account shall never be increased, but shall be subject to downward
adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date or Supplemental
Eligibility Record Date (as applicable) is less than the lesser of (a) the
deposit balance in such Savings Account at the close of business on any previous
annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, or (b) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, as applicable, then the subaccount balance
for such Savings Account shall be adjusted by reducing such subaccount balance
in an amount proportionate to the reduction in such deposit balance. In the
event of a downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. The subaccount balance of a Savings Account holder shall be
maintained for as long as the Savings Account holder maintains an account with
the same social security number with the Converted Savings Bank.
In the event of a complete liquidation of the Converted Savings Bank (and
only in such event), each Eligible Account Holder and Supplemental Eligible
Account Holder, as applicable, shall be entitled to receive a liquidation
distribution from the Liquidation Account in the amount of the then current
adjusted subaccount balances for Savings Accounts then held, after the payment
of creditors of the Converted Savings Bank, including deposit account holders,
but before any liquidation distribution may be made to the Converted Savings
Bank's stockholders. No merger, consolidation, purchase of bulk assets with
assumption of deposit accounts and other liabilities, or similar combination or
transaction with or by another FDIC-insured institution shall be considered to
be a complete liquidation for this purpose. In such transactions, the
Liquidation Account shall be assumed by the surviving institution.
XII. Management
The Savings Bank or the Holding Company have entered or will enter into
contracts of employment with selected executives; the Savings Bank intends to
adopt and approve the ESOP; and, subject to approval of the stockholders of the
Holding Company, the Holding Company intends to approve and adopt stock option
plans for employees and directors of the Holding Company and/or the Savings Bank
and a management recognition plan providing for the issuance of restricted stock
of the Holding Company to certain employees and directors of the Holding Company
and/or the Savings Bank.
XIII. Amendment or Termination of Plan
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the Board of Directors of the Savings Bank. After submission of the Plan and
proxy materials to the Members, the Plan may be amended by a two-thirds vote of
the Board of Directors of the Savings Bank, but only with the concurrence of the
Administrator.
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In the event that mandatory new regulations pertaining to conversions are
adopted by the Administrator or FDIC prior to the completion of the Conversion,
the Plan will be amended as provided above to conform to the new mandatory
regulations without a re-solicitation of proxies or another Special Meeting. In
the event that new conversion regulations adopted by the Administrator or FDIC
prior to completion of the Conversion contain optional provisions, the Plan may
be amended as provided above to utilize such optional provisions without a re-
solicitation of proxies or another Special Meeting.
The Plan may be terminated by a two-thirds vote of the Board of Directors
of the Savings Bank at any time prior to the Special Meeting, and at any time
following such Special Meeting with the concurrence of the Administrator. The
Plan shall terminate automatically if the sale of all shares of Conversion Stock
required to be sold is not completed within 12 months of the date of the Special
Meeting, unless the Administrator agrees in writing to an extension of up to an
additional 12 months.
By adoption of the Plan, the Members authorize the Board of Directors of
the Savings Bank to amend or terminate the Plan under the circumstances set
forth above.
XIV. Expenses of the Conversion
The Savings Bank will use its best efforts to assure that expenses incurred
in connection with the Conversion shall be reasonable.
XV. Prohibition on Extensions of Credit
The Savings Bank, the Holding Company or any subsidiary of either of them
may not knowingly loan funds or otherwise extend unsecured credit or credit
secured by the Holding Company's Conversion Stock to any person to purchase
shares of Conversion Stock.
XVI. Contributions to Tax-Qualified Employee Stock Benefit Plans
The Savings Bank may make scheduled discretionary contributions to the ESOP
or any other tax-qualified employee stock benefit plan, provided such
contributions do not cause the Savings Bank to fail to meet its net worth
requirements.
20
<PAGE>
ANNEX I
Second Amended and Restated Certificate of Incorporation
of
Home Savings Bank of Albemarle, Inc., SSB
ARTICLE I
The name of the corporation is Home Savings Bank of Albemarle, Inc., SSB
(the "Savings Bank").
ARTICLE II
The principal office of the Savings Bank shall be located at 155 West
South Street, Albemarle, Stanly County, North Carolina. The address of the
registered office of the Savings Bank is 155 West South Street, Albemarle,
Stanly County, North Carolina 28001, and the name of the registered agent at the
address is Carl M. Hill.
ARTICLE III
The period of duration of the Savings Bank is perpetual.
ARTICLE IV
The purposes for which the Savings Bank is organized are to pursue any and
all of the lawful objectives of a stock savings bank chartered under the
provisions of the General Statutes of North Carolina and to exercise all of the
express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the constitutions and
laws of the State of North Carolina and the United States as they are now in
effect, or as they may hereafter be amended, and subject to all lawful and
applicable rules, regulations and orders of appropriate regulatory authorities.
ARTICLE V
The Savings Bank shall have authority to issue 100,000 shares of stock.
These shares shall be all of one class, designated as common stock with no par
value.
ARTICLE VI
The minimum amount of consideration to be received for its shares of stock
before the Savings Bank shall commence business as a stock savings bank is $100.
<PAGE>
ARTICLE VII
The shareholders of the Savings Bank do not have preemptive rights to
---
acquire additional or treasury shares of the Savings Bank.
ARTICLE VIII
Pursuant to the requirements of the rules and regulations of the
Administrator of the Savings Institutions Division, North Carolina Department of
Commerce, the Savings Bank shall establish and maintain a liquidation account
for the benefit of its "Eligible Account Holders" and "Supplemental Eligible
Account Holders," if applicable, as defined in the Plan of Holding Company
Conversion adopted by the Savings Bank in connection with its conversion to the
stock form of ownership. In the event of a complete liquidation of the Savings
Bank, it shall comply with such rules and regulations with respect to the amount
and the priorities on liquidation of each Eligible Account Holder's or
Supplemental Eligible Account Holder's inchoate interest in the liquidation
account, to the extent it is still in existence; provided, however, that an
Eligible Account Holder's or Supplemental Eligible Account Holder's inchoate
interest in the liquidation account shall not entitle such person or entity to
any voting rights at meetings of the Savings Bank's shareholders.
ARTICLE IX
The business and affairs of the Savings Bank shall be managed by a Board of
Directors. The number of directors shall be fixed by the Savings Bank's Bylaws
but shall not be less than five (5) and not more than twelve (12). Terms of
directors may be classified as stated in the Savings Bank's Bylaws.
ARTICLE X
To the fullest extent that the law of North Carolina as it exists on the
effective date of this Article, or as it may thereafter be amended, permits the
elimination of liability of directors, no director of the Savings Bank shall be
personally liable to the Savings Bank or any of its shareholders for monetary
damages for any breach of duty as a director. No amendment to or repeal of this
Article shall apply to or have any effect on the liability or alleged liability
of any director of the Savings Bank for or with respect to any act or failure to
act on the part of such director occurring prior to such amendment or repeal.
The provisions of this Article shall not be deemed to limit or preclude
indemnification of a director by the Savings Bank for any liability of a
director which has not been eliminated by the provisions of this Article.
2
<PAGE>
ARTICLE XI
Any addition, alteration or amendment to this Charter shall be made in
accordance with the provisions of Chapter 54C of the General Statutes of North
Carolina and any amendments thereto.
HOME SAVINGS BANK, SSB
By: _________________________________________
Carl M. Hill, President
ATTEST:
By: _______________________________
Shelia S. Barbee, Secretary
3
<PAGE>
STATE OF NORTH CAROLINA
COUNTY OF STANLY
This is to certify that on this ________ day of __________________, 1996,
before me, a Notary Public, personally appeared Carl M. Hill and Shelia S.
Barbee, each of whom, being by me first duly sworn, declared that he signed the
foregoing instrument in the capacity indicated, that he was authorized so to
sign, and that the statements contained therein are true.
Witness my hand and official seal, this _____ day of ____________________,
1996.
____________________________________________
Notary Public
(OFFICIAL SEAL)
My Commission Expires: _______________________
4
<PAGE>
ANNEX II
BYLAWS
OF
HOME SAVINGS BANK OF ALBEMARLE, INC., S.S.B.
ARTICLE I.
OFFICES
-------
Section 1. Principal Office. The principal office of the Savings Bank
--------- ----------------
shall be located at 155 West South Street, Albemarle, North Carolina 28001.
Section 2. Registered Office. The registered office of the Savings Bank
--------- -----------------
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
ARTICLE II.
MEETING OF SHAREHOLDERS
-----------------------
Section 1. Place of Meetings. All meetings of shareholders shall be held
--------- -----------------
at the principal office of the Savings Bank, or at such other place, either
within or without the State of North Carolina, as shall be designated in the
notice of the meeting or agreed upon by a majority of the shareholders entitled
to vote thereat.
Section 2. Annual Meetings. The annual meeting of shareholders shall be
--------- ---------------
held during the first five (5) calendar months following the end of the Savings
Bank's fiscal year, or any day (except Saturday, Sunday or a legal holiday)
during that period as shall be determined by the Board of Directors, for the
purpose of electing directors of the Savings Bank, receiving annual reports of
officers, and transacting such other business as may be properly brought before
the meeting.
Section 3. Substitute Annual Meeting. If the annual meeting shall not be
--------- -------------------------
held on the date designated by these Bylaws, a substitute annual meeting may be
called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
1
<PAGE>
Section 4. Special Meetings. Special meetings of the shareholders may be
--------- ----------------
called at any time by the President, or a majority of the Board of Directors by
giving notice as hereinafter provided, and, unless the Savings Bank should at
such time have a class of shares registered under Section 12 of the Securities
Exchange Act of 1934, as amended, shall be called by any of the foregoing
pursuant to the written request of the holders of not less than one-tenth (1/10)
of all votes entitled to be cast on any issue proposed to be considered at the
meeting.
Section 5. Notice of Meetings. Written or printed notice stating the
--------- ------------------
time, place and date of the meeting shall be delivered not less than ten (10)
nor more than sixty (60) days before the date thereof, either in person or by
mail, by or at the direction of the Board of Directors, the President or the
Secretary to each shareholder of record entitled to vote at such meeting unless
applicable law or the Saving Bank's articles of incorporation require that such
notice shall be given to all shareholders with respect to such meeting. If
mailed, such notice shall be deemed to be effective when deposited in the United
States mail, correctly addressed to the shareholder at the shareholder's address
as it appears on the current record of shareholders of the Savings Bank, with
postage thereon prepaid.
In the case of an annual or substitute annual meeting, the notice of
meeting need not specifically state the business to be transacted thereat unless
such a statement expressly is required by the provisions of the North Carolina
Business Corporation Act. In the case of a special meeting, the notice of
meeting specifically shall state the purpose or purposes for which the meeting
is called.
If any meeting of shareholders is adjourned to a different date, time or
place, notice need not be given of the new date, time or place if the new date,
time or place is announced at the meeting before adjournment and if a new record
date is not fixed for the adjourned meeting. If a new record date for the
adjourned meeting is or must be fixed pursuant to North Carolina law, notice of
the adjourned meeting must be given as provided in this Section to persons who
are shareholders as of the new record date.
Section 6. Waiver of Notice. Any shareholder may waive notice of any
--------- ----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the Savings Bank for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (a) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or the shareholder's proxy at the
beginning of the meeting objects to holding the meeting or transacting business
thereat, and (b) waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.
Section 7. Voting List. Before each meeting of shareholders, an
--------- -----------
alphabetical list of the shareholders entitled to notice of such meeting shall
be prepared by the Secretary of the Savings Bank. The list shall be arranged by
voting group and within each voting group by class or series of shares and show
the address of and number of shares held by each shareholder. The list shall be
kept on file at the principal office of the Savings Bank for the period
beginning two (2) business days
2
<PAGE>
after notice of the meeting is given and continuing through the meeting, and
shall be available for inspection by any shareholder or the agent or attorney of
any shareholder at any time prior to the meeting during regular business hours
and at any time during the meeting or any adjournment thereof.
Section 8. Voting Group. All shares of one or more classes or series that
--------- ------------
under the Savings Bank's articles of incorporation or the North Carolina
Business Corporation Act are entitled to vote and be counted together
collectively on a matter at a meeting of shareholders constitute a voting group.
All shares entitled by the Savings Bank's articles of incorporation or the North
Carolina Business Corporation Act to vote generally on a matter are for that
purpose a single voting group. Classes or series of shares shall not be
entitled to vote separately by voting group unless expressly authorized by the
Savings Bank's articles of incorporation or specifically required by law.
Section 9. Quorum. Shares entitled to vote generally as a single voting
--------- ------
group or as a separate voting group may take action on a matter at the meeting
of shareholders only if a quorum of those shares is present at the meeting. A
majority of the votes entitled to be cast on the matter by the voting group
shall constitute a quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders,
such meeting may be adjourned from time to time by a vote of a majority of the
votes cast on the motion to adjourn; and at any adjourned meeting any business
may be transacted which might have been transacted at the original meeting if a
quorum exists with respect to the matter proposed.
Section 10. Proxies. Shares may be voted either in person or by one or
---------- -------
more agents authorized by a written proxy executed by the shareholder or by the
shareholder's duly authorized attorney-in-fact. A proxy shall not designate as
a holder any corporation or partnership including any person acting on behalf of
any corporation or partnership, or any person other than a living natural
person. However, a proxy may designate the holder of a specified title or
office, if a natural person, or a committee composed solely of natural persons,
including a committee composed of the Board of Directors of the Savings Bank.
Section 11. Voting of Shares. Subject to the provisions of the Savings
---------- ----------------
Bank's articles of incorporation, each outstanding share shall be entitled to
one vote on each matter submitted to a vote at a meeting of shareholders.
Except in the election of directors as provided in Section 3 of Article
III, if a quorum exists, action on a matter by a voting group at a meeting of
shareholders is approved if the votes cast within the voting group favoring the
action exceed the votes cast opposing the action, unless a greater vote is
required by law or the Savings Bank's articles of incorporation or these Bylaws.
3
<PAGE>
Section 12. Informal Action by Shareholders. Any action which may be
---------- -------------------------------
taken at a meeting of shareholders may be taken without a meeting if one or more
written consents, setting forth the action so taken, shall be signed by all of
---
the persons who would be entitled to vote upon such action at a meeting, and
delivered to the Secretary of the Savings Bank for inclusion in the minutes or
filing with the corporate records.
If the Savings Bank is required by law to give notice to nonvoting
shareholders of action to be taken by unanimous written consent of the voting
shareholders, then the Savings Bank shall give the nonvoting shareholders, if
any, written notice of the proposed action at least ten (10) days before the
action is taken.
ARTICLE III.
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the Savings Bank
--------- --------------
shall be managed by the Board of Directors or by such Executive Committee as the
Board may establish.
Section 2. Number, Term and Qualifications. The number of Directors of
--------- -------------------------------
the Savings Bank shall be no less than five (5), with the exact number to be
fixed from time to time by the Board of Directors. Each Director shall hold
office until his death, resignation, retirement, removal, disqualification, or
his successor shall have been elected and qualified except as provided in
Article III, Section 6. For so long as the total number of directors as fixed
pursuant to this Section 2 is nine (9) or more, the directors shall be divided
into three (3) classes, as nearly equal as possible in number, and each class
shall be elected for staggered terms of three (3) years and until their
successors shall be elected and qualified.
Section 3. Election of Directors. Except as provided in Section 5 of this
--------- ---------------------
Article III, the directors shall be elected at the annual meeting of
shareholders, and those persons who receive the highest number of votes at a
meeting at which a quorum is present shall be deemed to have been elected. If
any shareholder so demands, election of directors shall be by ballot.
Section 4. Removal. Any director may be removed at any time with or
--------- -------
without cause by a vote of shareholders holding a majority of the votes entitled
to be cast at an election of the directors. If any directors are so removed,
new directors may be elected at the same meeting.
Section 5. Vacancies. Any vacancy occurring in the Board of Directors,
--------- ---------
including without limitation a vacancy resulting from an increase in the number
of directors or from the failure by the shareholders to elect the full
authorized number of directors, may be filled by the shareholders, a majority of
the remaining directors, though less than a quorum, or by the sole remaining
director. A director elected to fill a vacancy shall be elected until the next
shareholders' meeting at which directors are elected. The shareholders may
elect a director at any time to fill any vacancy not filled by the directors.
4
<PAGE>
Section 6. Age Limitation on Directors. A person who is seventy (70)
--------- ---------------------------
years of age or older shall not be eligible for election, re-election,
appointment, or re-appointment to the Board of Directors. A director shall not
serve as such beyond the annual meeting of the Savings Bank immediately
following the director becoming seventy (70) years of age.
ARTICLE IV.
MEETINGS OF DIRECTORS
---------------------
Section 1. Regular Meetings. A regular meeting of the Board of Directors
--------- ----------------
shall be held immediately after, and at the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors
--------- ----------------
may be called by or at the request of the President, Vice President acting in
his absence or incapacity, or any two (2) Directors, upon notice either in
person or by mail. Such meetings shall be held either within or without the
State of North Carolina as fixed by the person or persons calling any such
meeting.
Section 3. Notice of Meetings. The applicable provisions of North
--------- ------------------
Carolina law shall govern meetings of the Board of Directors, notice of
meetings, waiver of notice, quorums and actions of the Board of Directors.
Section 4. Quorum. A majority of the number of directors shall constitute
--------- ------
a quorum for the transaction of business at any meeting of the Board of
Directors.
Section 5. Manner of Acting. Except as otherwise provided in these
--------- ----------------
Bylaws, 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.
Section 6. Presumption of Assent. A director of the Savings Bank who is
--------- ---------------------
present at a meeting of the Board of Directors at which action on any matter is
taken shall be presumed to have assented to the action unless his contrary vote
is recorded or his dissent is otherwise 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 Savings Bank immediately
after the adjournment of the meeting. Such right to dissent shall not apply to
a director who voted in favor of such action.
Section 7. Informal Action by Directors. Action taken by the
--------- ----------------------------
directors without a meeting is nevertheless Board action if written consent to
the action is signed by all the directors and filed with the minutes of the
proceedings of the Board or other corporate records, whether done before or
after the actions are taken.
5
<PAGE>
ARTICLE V.
OFFICERS
--------
Section 1. Officers of the Savings Bank. The officers of the Savings
--------- ----------------------------
Bank shall consist of a President, a Secretary, a Treasurer, and such Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers as
the Board of Directors may from time to time elect. Any two (2) or more offices
may be held by the same person, except the offices of President and Secretary,
but no officer may act in any more than one capacity where action of two (2) or
more officers is required.
Section 2. Election and Term. The officers of the Savings Bank shall
--------- -----------------
be elected by the Board of Directors. Such election may be held at any regular
or special meeting of the Board. Each officer shall hold office until his
death, resignation, retirement, removal, disqualification or his successor is
elected and qualified.
Section 3. Removal. Any officer or agent elected or appointed by the
--------- -------
Board of Directors may be removed by the Board whenever in its judgment the best
interests of the Savings Bank will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Section 4. President. The President shall be the principal executive
--------- ---------
officer and managing officer of the Savings Bank and, subject to the control of
the Board of Directors, shall supervise and control all of the business and
affairs of the Savings Bank. He or she shall sign, with the Secretary, an
Assistant Secretary, or with any other proper officer authorized by the Board of
Directors and whose signature is required, certificates for shares of the
Savings Bank and any deeds, mortgages, bonds, contracts, or other instruments
which may be lawfully executed on behalf of the Savings Bank, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be delegated by the Board of
Directors or these Bylaws to some other officer or agent of the Savings Bank;
and, in general, he or she shall perform all duties incident to the office of
the President and such other duties as may be prescribed by the Board of
Directors from time to time.
Section 5. Vice Presidents. In the absence of the President or in
--------- ---------------
the event of his death, inability or refusal to act, the Vice Presidents, unless
otherwise determined by the Board of Directors, shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President, with any other proper
officer whose signature is required, may sign certificates for shares of the
Savings Bank and shall perform such other duties as from time to time may be
assigned to him or her by the President or Board of Directors.
6
<PAGE>
Section 6. Secretary. The Secretary shall: (a) keep the minutes of
--------- ---------
the meetings of shareholders and of the Board of Directors in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records and of the seal of the Savings Bank and see that the seal
of the Savings Bank is affixed to all documents the execution of which on behalf
of the Savings Bank under its seal is duly authorized; (d) have general charge
of the stock transfer books of the Savings Bank and shall keep, at the
registered or principal office of the Savings Bank a record of shareholders
showing the name and address of each shareholder and the number and class of the
shares held by each; (e) be authorized, with any other proper officer, to sign
certificates for shares of the Savings Bank and shall sign such other
instruments as may require the Secretary's signature; and (f) in general perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him or her by the President or by the Board of
Directors.
Section 7. Assistant Secretaries. In the absence of the Secretary or
--------- ---------------------
in the event of his or her death, inability or refusal to act, the Assistant
Secretaries, unless otherwise determined by the Board of Directors, shall
perform the duties of the Secretary, and when so acting shall have all the
powers of and be subject to all the restrictions upon the Secretary. Any
Assistant Secretary, with any other proper officer, may sign certificates for
shares of the Savings Bank. They shall perform such other duties as may be
assigned to them by the Secretary, by the President, or by the Board of
Directors.
Section 8. Treasurer. The Treasurer shall: (a) have charge and
--------- ---------
custody of and be responsible for all funds and securities of the Savings Bank;
receive and give receipts for money due and payable to the Savings Bank from any
source whatsoever, and deposit all such moneys in the name of the Savings Bank
in such depositories as shall be selected by the Board of Directors of the
Savings Bank; (b) have authority, with any other proper officer, to sign
certificates for shares of the Savings Bank; and (c) in general perform all of
the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the President or by the Board of
Directors, or by these Bylaws.
Section 9. Assistant Treasurers. In the absence of the Treasurer or
--------- --------------------
in the event of his or her death, inability or refusal to act, the Assistant
Treasurers, unless otherwise determined by the Board of Directors, shall perform
the duties of the Treasurer, and when so acting shall have all the powers of and
be subject to all the restrictions upon the Treasurer. Any Assistant Treasurer,
with any other proper officer, may sign certificates for shares of the Savings
Bank. They shall perform such other duties as may be assigned to them by the
Treasurer, by the President, or by the Board of Directors.
7
<PAGE>
ARTICLE VI.
CONTRACTS, LOANS, CHECKS AND DEPOSITS
-------------------------------------
Section 1. Contracts. The Board of Directors may authorize any
--------- ---------
officer or officers, agent or agents, to enter into any contract or execute and
deliver any instruments in the name of and on behalf of the Savings Bank, and
such authority may be general or confined to specific instances.
Section 2. Loans. No loan shall be contracted on behalf of the
--------- -----
Savings Bank and no evidences of indebtedness shall be issued in its name unless
authorized by Article VI of these Bylaws or authorized by a resolution of the
Board of Directors. Such authority may be general or confined to specific
instances.
Section 3. Checks and Drafts. All checks, drafts or other orders for
--------- -----------------
the payment of money issued in the name of the Savings Bank shall be signed by
such President or such other officer or officers, agent or agents of the Savings
Bank and in such manner as shall from time to time be determined by resolution
of the Board of Directors.
Section 4. Deposits. All funds of the Savings Bank not otherwise
--------- --------
employed shall be deposited from time to time to the credit of the Savings Bank
in such depositories as the Board of Directors shall direct.
ARTICLE VII.
DEPOSIT ACCOUNTS
----------------
Section 1. Classes of Deposit Accounts. The Savings Bank may issue
--------- ---------------------------
as many classes of deposit accounts as the Board of Directors shall establish,
subject to such regulations and limitations as the Administrator of the Savings
Institutions Division of the North Carolina Department of Commerce and the
Federal Deposit Insurance Corporation may prescribe. Such classes of deposit
accounts may include passbook accounts, certificate accounts, NOW accounts,
trust accounts, demand accounts and such other accounts as are permitted by law.
The minutes of the meetings of the Board of Directors of the Savings Bank shall
define each class of deposit account being offered to the public and shall show
all changes made in the class or classes of deposit accounts available to the
customers of the Savings Bank.
Section 2. Withdrawals. The Savings Bank shall have the right to pay
--------- -----------
the withdrawal value of its deposit accounts at any time upon written
application therefor and to pay the holders thereof the withdrawal value
thereof. Upon receipt of a written application from any holder of a deposit
account of all or any part of the withdrawal value thereof, the Savings Bank
shall within thirty (30) days pay the amount requested. If the Savings Bank is
unable to pay all withdrawals requested at the end of thirty (30) days from the
date of such requests, it shall then pay all withdrawals requested in accordance
with the applicable provisions of the General Statutes of North
8
<PAGE>
Carolina, as amended, and the regulations of the Federal Deposit Insurance
Corporation. Holders of deposit accounts for which application for withdrawal
has been made shall remain holders of deposit accounts until paid and shall not
become creditors.
When a certificate or agreement between the Savings Bank and the
account holder specifies a particular period of time for notice of withdrawals,
withdrawals shall be made in accordance with such certificate or agreement.
Section 3. Forced Retirement. If so provided in the deposit account
--------- -----------------
contract, the Savings Bank may redeem all or any part of its deposit accounts
which have not been pledged as security for loans. The Savings Bank shall give
at least thirty (30) days notice of such redemption by certified mail addressed
to the holder of each deposit account at his or her last address as recorded on
the books of the Savings Bank. The Savings Bank may not redeem any of its
deposit accounts when it has any request for withdrawal which has been on file
and unpaid for more than thirty (30) days. Also, the Savings Bank may not redeem
any fixed-term deposit accounts which have not matured. The redemption price of
each deposit account redeemed shall be the full value thereof, as determined by
the Board of Directors, but in no event shall the redemption price be less than
the withdrawal amount of such deposit accounts. If notice of redemption is duly
given and sufficient funds are available for such redemption, interest shall
cease to accrue on the deposit account as of the redemption date. After the
redemption date all rights with respect to the deposit account shall terminate,
except for the right of the deposit account holder to receive the redemption
price thereof without interest.
Section 4. New Account Books. The Savings Bank may issue a new
--------- -----------------
account book or certificate, or other evidence of ownership of a deposit
account, in the name of the holder of record at any time when requested by such
holder or his or her legal representative upon proof satisfactory to the Savings
Bank that the original account book or certificate has been lost or destroyed.
Such proof of loss shall ordinarily include a written verification by the holder
or his or her legal representative that the account book or certificate has been
lost or destroyed and the account has not been pledged or assigned. Such new
account book or certificate shall expressly state that it is issued in lieu of
the one lost or destroyed and that the Savings Bank shall in no way be liable
thereafter on account of the original book or certificate. When issuing such a
new account book or certificate, the Savings Bank may, at its option, require
the holder of record to give to the Savings Bank a bond in such sum as it may
direct, or such other indemnification as it may dictate, in order to indemnify
the Savings Bank against any loss that might result from the issuance of the new
account book, certificate, or other evidence of ownership of a deposit account.
ARTICLE VIII.
LOANS AND INVESTMENTS
---------------------
Section 1. General Lending Authority. Funds of the Savings Bank
--------- -------------------------
shall be loaned in compliance with the General Statutes of North Carolina, the
regulations promulgated by the
9
<PAGE>
Administrator of the Savings Institutions Division of the North Carolina
Department of Commerce and applicable federal statutes and regulations, and in
such sums and at such times as the Board of Directors may determine.
Section 2. Manner of Making Loans. The Board of Directors shall
--------- ----------------------
establish and maintain procedures by which loans are to be considered, approved,
and made by the Savings Bank. Such loan procedures may be amended by resolution
of the Board of Directors.
The Board of Directors may establish a Loan Committee to implement the
Board's loan procedures and to consider and approve loans.
The Board of Directors may designate one or more of the Savings Bank's
officers to serve as Loan Officers. Such Loan Officers shall have authority to
approve loans as determined by the Board.
All actions taken on loan applications to the Savings Bank shall be
reported to the Board of Directors at its meeting next following such actions.
Section 3. Appraisals. The Board of Directors shall cause all real
--------- ----------
estate upon which loans are applied for to be appraised and approved as provided
by law.
ARTICLE IX.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
------------------------------------------
Section 1. Certificate For Shares. If the shares of the Savings Bank
--------- ----------------------
are represented by certificates, the certificates shall be in such form as
required by law and as determined by the Board of Directors and shall be signed
by the President or any Vice President and either the Secretary or an Assistant
Secretary or the Treasurer or an Assistant Treasurer. All certificates for
shares shall be numbered consecutively or otherwise identified and shall
indicate thereon a reference to any and all restrictive conditions of said
shares. Certificates representing shares of the Savings Bank may be issued to
every shareholder for the fully paid shares owned thereby; the name and address
of the persons to whom they are issued, the number of shares, and the date of
issue shall be entered on the stock transfer books of the Savings Bank. If the
shares are not represented by certificates, then within a reasonable time after
issuance or transfer of such shares, the Savings Bank shall deliver to the
shareholder to whom such shares have been issued or transferred a written
statement of the information required by law to be on certificates.
Section 2. Transfer of Shares. If the shares are represented by
--------- ------------------
certificates, transfer of shares shall be made on the stock transfer books of
the Savings Bank only upon surrender of the certificates for the shares sought
to be transferred by the record holder thereof or by such shareholder's duly
authorized agent, transferee or legal representative. All certificates
surrendered for transfer shall be cancelled before new certificates for the
transferred shares shall be issued. If
10
<PAGE>
the shares are not represented by certificates, transfer of shares shall be made
on the stock transfer books of the Savings Bank only upon the furnishing of
proper evidence of authority to transfer by the holder of record thereof or such
shareholder's duly authorized agent, transferee or legal representative.
Transfer of shares may be restricted by an agreement of the shareholder(s).
Section 3. Fixing Record Date. The Board of Directors of the Savings
--------- ------------------
Bank may fix a future date as the record date for one or more voting groups in
order to determine (a) the shareholders entitled to notice of a meeting of
shareholders, (b) the shareholders entitled to demand a special meeting, if any,
(c) the shareholders entitled to vote, or (d) the shareholders entitled to take
any other action. A record date fixed under this Section may not be more than
seventy (70) days before the meeting of action requiring a determination of
shareholders.
A determination of shareholders entitled to notice of or to vote at a
meeting of shareholders is effective for any adjournment of the meeting unless
the Board of Directors fixes a new record date for the adjourned meeting, which
it must do if the meeting is adjourned to a date more than one hundred twenty
(120) days after the date fixed for the original meeting.
If no record date is fixed by the Board of Directors for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, the close of business on the day before the first notice of the
meeting is delivered to shareholders shall be the record date for such
determination of shareholders.
Section 4. Lost Certificates. The Board of Directors may authorize
--------- -----------------
the issuance of a new share certificate in place of a certificate theretofore
issued by the Savings Bank claimed to have been lost or destroyed, upon receipt
of an affidavit of such fact from the person claiming the loss or destruction.
When authorizing such issuance of a new certificate, the Board shall require the
claimant to give the Savings Bank a bond in such sum as the Board may direct to
indemnify the Savings Bank against loss from any claim with respect to the
certificate claimed to have been lost or destroyed; provided, however, that the
Board, by resolution reciting the circumstances justifying such action, may
authorize the issuance of the new certificate without requiring such a bond.
Section 5. Holder of Record. Except as otherwise required by law,
--------- ----------------
the Savings Bank may treat as the absolute owner of shares and as the person
exclusively entitled to receive notification and distributions, to vote and
otherwise to exercise the rights, powers, and privileges of ownership of such
shares, the person in whose name the shares stand of record on its books.
Section 6. Reacquired Shares. Shares of the Savings Bank that have
--------- -----------------
been issued and thereafter reacquired by the Savings Bank shall constitute
authorized but unissued shares.
11
<PAGE>
ARTICLE X.
GENERAL PROVISIONS
------------------
Section 1. Distributions. The Board of Directors from time to time
--------- -------------
may authorize, and the Savings Bank may pay, distributions and share dividends
on the Savings Bank's outstanding shares in the manner and upon the terms and
conditions provided by law and by the Savings Bank's certificate of
incorporation.
Section 2. Seal. The corporate seal of the Savings Bank shall
--------- ----
consist of two (2) concentric circles between which is the name of the Savings
Bank and in the center of which is inscribed SEAL; and such seal, as impressed
on the margin hereof, is hereby adopted as the corporate seal of the Savings
Bank.
Section 3. Indemnity. In addition to any indemnification required or
--------- ---------
permitted by law, and except as otherwise provided in these Bylaws, any person
who at any time serves or has served as a director, officer, employee or agent
of the Savings Bank and any such person who serves or has served at the request
of the Savings Bank as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or as a
trustee or administrator under an employee benefit plan, shall have a right to
be indemnified by the Savings Bank to the full extent allowed by applicable law
against liability and litigation expense arising out of such status or
activities in such capacity. "Liability and litigation expense" shall include
costs and expenses of litigation (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement which are actually and
reasonably incurred in connection with or as a consequence of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including appeals.
Promptly after the final disposition or termination of any matter
which involves liability or litigation expense as described above or at such
earlier time as it sees fit, the Savings Bank shall determine whether any person
described in this Section 3 is entitled to indemnification thereunder. Such
determination shall be limited to the following issues: (i) whether the
persons to be indemnified are persons described in this Section 3, (ii) whether
the liability or litigation expense incurred arose out of the status or
activities of such persons as described in this Section 3, (iii) whether
liability was actually incurred and/or litigation expense was actually and
reasonably incurred, and (iv) whether the indemnification requested is permitted
by applicable law. Such determination shall be made by a majority vote of
directors who were not parties to the action, suit or proceeding (or, in
connection with "threatened" actions, suits or proceedings, who were not
"threatened parties"). If at least two (2) such disinterested directors are not
obtainable, or, even if obtainable, if at least half of the number of
disinterested directors so direct, such determination shall be made by
independent legal counsel in written opinion.
12
<PAGE>
Litigation expense incurred by a person described in this Section 3 in
connection with a matter described in this Section 3 may be paid by the Savings
Bank in advance of the final disposition or termination of such matter, if the
Savings Bank receives an undertaking, dated, in writing and signed by the person
to be indemnified, to repay all such sums unless such person is ultimately
determined to be entitled to be indemnified by the Savings Bank as provided in
this Section 3. Requests for payments in advance of final disposition or
termination shall be submitted in writing unless this requirement is waived by
the Savings Bank.
Notwithstanding the foregoing, no advance payment shall be made as to
any payment or portion of a payment for which the determination is made that the
person requesting payment will not be entitled to indemnification. Such
determination may be made only by a majority vote of disinterested directors or
by independent legal counsel as next provided. If there are not at least two
(2) disinterested directors, the notice of all requests for advance payment
shall be delivered for review to independent legal counsel for the Savings Bank.
Such counsel shall have the authority to disapprove any advance payment or
portion of a payment for which it appears that the person requesting payment
will not be entitled to indemnification.
The Savings Bank shall not be obligated to indemnify persons described
in this Section 3 for any amounts paid in settlement unless the Savings Bank
consents in writing to the settlement. The Savings Bank shall not unreasonably
withhold its consent to proposed settlements. The Savings Bank's consent to a
proposed settlement shall not constitute an agreement by the Savings Bank that
any person is entitled to indemnification hereunder. The Savings Bank may waive
the requirement of this section for its written consent as fairness and equity
may require.
A person described in this Section 3 may apply to the Savings Bank in
writing for indemnification or advance expenses. Such applications shall be
addressed to the Secretary or, in the absence of the Secretary, to any officer
of the Savings Bank. The Savings Bank shall respond in writing to such
applications as follows: to a request for indemnity under this Section 3, within
ninety (90) days after receipt of the application; to a request for advance
expenses under this Section 3, within fifteen (15) days after receipt of the
application.
If any action is necessary or appropriate to authorize the Savings
Bank to pay the indemnification required by these Bylaws, the Board of Directors
shall take such action, including (i) making a good faith evaluation of the
indemnification request, (ii) giving notice to, and obtaining approval by, the
shareholders of the Savings Bank, and (iii) taking any other action.
The right to indemnification or advance expenses provided herein shall
be enforceable in any court of competent jurisdiction. A legal action may be
commenced if a claim for indemnity or advance expenses is denied in whole or in
part, or upon the expiration of the time periods provided above. In any such
action, if the claimant establishes the right to indemnification, he or she
shall also have the right to be indemnified against the litigation expense
(including, without limitation, reasonable attorneys' fees) of such action.
13
<PAGE>
As provided by N.C. Gen. Stat. (S)55-8-57, the Savings Bank shall have
the power to purchase and maintain insurance on behalf of any person who is or
was a director, officer, employee or agent of the Savings Bank, or who is or was
serving at the request of the Savings Bank as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the Savings Bank
has the power to indemnify him against such liability.
The right to indemnification provided herein shall not be deemed
exclusive of any other rights to which any persons seeking indemnity may be
entitled apart from the provisions of this bylaw, except there shall be no right
to indemnification as to any liability or litigation expense for which such
person is entitled to receive payment under any insurance policy other than a
directors' and officers' liability insurance policy maintained by the Savings
Bank. Such right inures to the benefit of the heirs and legal representatives
of any persons entitled to such right. Any person who at any time after the
adoption of this bylaw serves or has served in any status or capacity described
in this Section 3, shall be deemed to be doing or to have done so in reliance
upon, and as consideration for, the right of indemnification provided herein.
Any repeal or modification hereof shall not affect any rights or obligations
then existing. The right provided herein shall not apply as to persons serving
institutions which are hereafter merged into or combined with the Savings Bank,
except after the effective date of such merger or combination and only as to
status and activities after such date.
If this Article or any portion hereof shall be invalidated on any
ground by any court or agency of competent jurisdiction, then the Savings Bank
shall nevertheless indemnify each person described in this Section 3 to the full
extent permitted by the portion of this Article that is not invalidated and also
to the full extent (not exceeding the benefits described herein) permitted or
required by other applicable law.
Section 4. Fiscal Year. The fiscal year of the Savings Bank shall be
--------- -----------
the twelve-month period which ends on September 30th.
Section 5. Amendments. Except as otherwise provided herein, or
--------- ----------
required by law, these Bylaws may be amended or repealed and new Bylaws may be
adopted by the affirmative vote of a majority of the Directors then holding
office at any regular or special meeting of the Board of Directors. No bylaw
adopted, amended or repealed by the shareholders shall be readopted, amended or
repealed by the Board of Directors unless the Savings Bank's articles of
incorporation or a bylaw adopted by the shareholders authorizes the Board of
Directors to adopt, amend or repeal that particular bylaw or the Bylaws
generally.
14
<PAGE>
The shareholders may amend or repeal these Bylaws even though these
Bylaws also may be amended or repealed by the Board of Directors.
Adopted this _____ day of _____________, 1996.
________________________________________
Secretary
15
<PAGE>
ARTICLES OF INCORPORATION
OF
SOUTH STREET FINANCIAL CORP.
ARTICLE I
The name of the corporation is South Street Financial Corp. (the
"Corporation").
ARTICLE II
Section 2.1. Total Authorized Shares of Capital Stock. The
----------- ----------------------------------------
Corporation shall have authority to issue a total 25,000,000 shares of capital
stock, none of which shall have any par value, divided into classes as follows:
<TABLE>
<CAPTION>
Class Number of Shares
----- ----------------
<S> <C>
Common Stock 20,000,000
Preferred Stock 5,000,000
</TABLE>
Section 2.2. Common Stock. The shares of Common Stock shall be of
----------- ------------
one and the same class. Subject to the rights of holders of the Preferred Stock
as determined by the Board of Directors pursuant to Section 2.3 hereof and by
the North Carolina Business Corporation Act ("NCBCA") as now constituted or
hereafter amended, the holders of shares of Common Stock shall have one vote per
share on all matters on which holders of shares of Common Stock are entitled to
vote and shall be entitled to participate pro rata after preferential rights of
holders of Preferred Stock in the distribution of the net assets of the
Corporation upon dissolution.
Section 2.3. Preferred Stock. The shares of Preferred Stock may be
----------- ---------------
issued from time to time by the Corporation, and the Board of Directors may
create and divide such shares into series within that class, and such shares and
the shares of each such series shall have such voting powers, full or limited,
<PAGE>
or no voting powers, and such designations, preferences, limitations and
relative rights (or qualifications, conditions or restrictions thereon) as the
Board of Directors may and hereby is authorized to determine.
ARTICLE III
The street address and county of the initial registered office of the
Corporation is 155 West South Street, Albemarle, Stanly County, North Carolina
28001. The mailing address of the initial registered office of the Corporation
is 155 West South Street, Albemarle, North Carolina 28001. The name of the
initial registered agent is Carl M. Hill.
ARTICLE IV
The name and address of the incorporator is as follows:
Carl M. Hill
155 West South Street
Albemarle, North Carolina 28001
ARTICLE V
To the fullest extent permitted by the NCBCA as it exists or may
hereafter be amended, no person who is serving or has served as a director of
the Corporation shall be personally liable to the Corporation or any of its
shareholders or otherwise for monetary damages for breach of any duty as a
director. No amendment or repeal of this Article, nor the adoption of any
provision to these Articles of Incorporation inconsistent with this Article,
shall eliminate or reduce the protection granted herein with respect to any
matter that occurred prior to such amendment, repeal, or adoption. The
provisions of this Article shall not be deemed to limit or preclude
indemnification of a director by the Corporation for any liability of a director
which has not been eliminated by the provisions of this Article.
2
<PAGE>
ARTICLE VI
The provisions of Article 9 and Article 9A of the NCBCA entitled "The
North Carolina Shareholder Protection Act" and "The North Carolina Control Share
Acquisition Act," respectively, shall not be applicable to the Corporation.
ARTICLE VII
Section 7.1. Definitions and Terms With Respect to Article VII. For
----------- -------------------------------------------------
purposes of this Article VII, the following definitions shall apply:
(a) The terms "Business Combination" shall mean any transaction in
connection with (i) a combination or merger of the Corporation, (ii) the
acquisition of more than ten percent (10%) of the Corporation's outstanding
Voting Shares, or (iii) a purchase or sale of a substantial portion of the
assets of the Corporation or a Subsidiary thereof (a purchase or sale of 20% or
more of the total assets of the Corporation or a Subsidiary as of the end of the
most recent quarterly period being deemed as "substantial") in each case, as
applicable, which requires the approval of, or notice to and absence of
objection by (i) any federal or state regulatory authority of banks, savings
banks, savings and loan associations or their holding companies, (ii) the
Federal Trade Commission or the Anti-Trust Division of the United States
Department of Justice, or (iii) the shareholders of the Corporation, but
excluding any reorganization, acquisition, merger, purchase or sale of assets,
or combination initiated by the Corporation upon the vote of at least fifty-one
percent (51%) of the Continuing Directors.
(b) 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 that the Related Person
became a Related Person, and any successor of a Continuing Director who is
unaffiliated with the Related Person and is recommended to succeed a Continuing
Director by a majority of the Continuing Directors.
3
<PAGE>
(c) The term "Person" shall mean an individual, a corporation, a
limited liability company, a partnership, an association, a joint stock company,
a trust, or an unincorporated organization or similar company, and also includes
a syndicate or any group of any of the foregoing formed or acting together in
concert for the purpose of acquiring, holding or disposing of the equity
securities or assets of the Corporation or any Subsidiary.
(d) The term "Related Person" shall mean any individual, partnership,
corporation, trust or other person or entity (together with its "affiliates" and
"associates," as defined in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended (the "1934 Act")) which as
of the date of its offer with respect to a Business Combination is a "beneficial
owner" (as defined in Rule 13d-3 under the 1934 Act) in the aggregate of ten
percent (10%) or more of the outstanding Voting Shares of the Corporation. A
Related Person shall be deemed to have acquired a share of the Voting Stock of
the Corporation at the time when such Related Person became the beneficial owner
thereof.
(e) The term "Subsidiary" shall mean any corporation or other entity
of which the Person in question owns not less than fifty percent (50%) of any
class of equity securities, directly or indirectly.
(f) The term "Voting Shares" shall mean any shares of the authorized
stock of the Corporation entitled to vote generally in the election of
directors.
(g) The term "Whole Board of Directors" shall mean the total number of
directors which the Corporation would have if there were no vacancies on the
Board.
Section 7.2. Rights of Shareholders. The affirmative vote of the
----------- ----------------------
holders of seventy-five percent (75%) or more of the outstanding Voting Shares,
voting separately as a class, shall be required for the approval or
authorization of any Business Combination, provided, however, that the seventy-
five
4
<PAGE>
percent (75%) voting requirement shall not be applicable and such Business
Combination may be approved by the shareholder vote required by law and any
other provision of these Articles of Incorporation if the Business Combination
is approved by the Board of Directors of the Corporation by the affirmative vote
of (a) at least seventy-five percent (75%) of the Whole Board of Directors, and
(b) if such Business Combination is proposed by a Related Person, at least
seventy-five percent (75%) of the Continuing Directors, in either case at a duly
called or convened regular or special meeting of the Board of Directors.
Section 7.3. Fiduciary Obligations. Nothing contained in this
----------- ---------------------
Article VII shall be construed to relieve any Related Person from any fiduciary
obligation imposed by law or equity.
Section 7.4. Standards of Board of Directors' Evaluation of an Offer.
----------- -------------------------------------------------------
The Board of Directors of the Corporation, when evaluating any offer of another
Person to effect a Business Combination shall, in connection with the exercise
of its judgment in determining what is in the best interests of the Corporation
and its shareholders, give due consideration to all relevant factors, including,
without limitation: (i) the social and economic effects of acceptance of such
offer on its depositors, borrowers, other customers, employees, and creditors of
the Corporation and its Subsidiaries, and on the communities in which the
Corporation and its Subsidiaries operate or are located; (ii) the ability of the
Corporation and its Subsidiaries to fulfill the objectives of a bank and/or
savings bank and/or savings and loan association holding company, as applicable,
and of commercial banking and/or savings bank and/or savings and loan entities,
as applicable, under applicable federal and state statutes and regulations;
(iii) the business and financial condition and prospects and earnings prospects
of the Person or Persons proposing the Business Combination, including, but not
limited to, debt service and other existing financial obligations, financial
obligations to be incurred in connection with the Business Combination, and
other likely financial obligations of such Person or Persons, and the possible
effect
5
<PAGE>
of such conditions and prospects upon the Corporation and its Subsidiaries and
the communities in which the Corporation and its Subsidiaries are located; (iv)
the competence, experience, and integrity of the Person or Persons proposing the
Business Combination and its or their management; and (v) the prospects for
successful conclusion of the proposed Business Combination. The provisions of
this Article VII shall be deemed solely to grant discretionary authority to the
Board of Directors and shall not be deemed to provide any constituency the right
to be considered or to compel the consideration of its interests.
Section 7.5. Amendment and Repeal of Article VII. Notwithstanding
----------- -----------------------------------
any other provision of these Articles of Incorporation or the Bylaws of the
Corporation (and notwithstanding the fact that a lesser percentage may be
specified by law) any amendment, change or repeal of this Article VII, or any
other amendment of these Articles of Incorporation which will have the effect of
modifying or permitting circumvention of this Article VII, shall require the
affirmative vote of the holders of at least seventy-five percent (75%) of the
then outstanding Voting Shares of the Corporation, voting separately as a class;
provided, however, that this restriction shall not apply to, and such seventy
five percent (75%) vote shall not be required for, any such amendment, change or
repeal recommended to shareholders of the Corporation by the affirmative vote of
at least (a) seventy-five percent (75%) of the Whole Board of Directors, and (b)
if at such time there shall be a Related Person, at least seventy-five percent
(75%) of the Continuing Board of Directors, and in either such event, such
amendment, change or repeal so recommended shall require only the vote, if any,
required under the applicable provisions of the NCBCA.
6
<PAGE>
ARTICLE VIII
Section 8.1. Board of Directors. The number of directors of the
----------- ------------------
Corporation shall not be less than five (5) nor more than fifteen (15), with the
exact number to be fixed from time to time as provided in the Corporation's
Bylaws.
In the first election of directors, and in all elections thereafter,
that the total number of directors as fixed pursuant to the Corporation's Bylaws
is nine (9) or more, the directors shall be divided into three (3) classes, as
nearly equal as possible in number as may be, to serve in the first instance for
terms of one, two and three years, respectively, from the date such class of
directors takes office or until their earlier death, resignation, retirement,
removal or disqualification or until their successors shall be elected and shall
qualify, and thereafter the successors in each class of directors shall be
elected for terms of three (3) years or until their earlier death, resignation,
retirement, removal, or disqualification or until their successors shall be
elected and shall qualify. In the event of any increase or decrease in the
number of directors at a time that the directors are so classified, the
additional or eliminated directorships shall be classified or chosen so that all
classes of directors shall remain or become as nearly equal as possible in
number. At all times that the number of directors, as fixed pursuant to the
Corporation's Bylaws, is less than nine (9), each director shall be elected to a
term ending as of the next succeeding annual meeting of shareholders or until
his or her earlier death, resignation, retirement, removal or disqualification
or until his or her successor shall be elected and shall qualify.
Any vacancy occurring in the Board of Directors, including without
limitation a vacancy resulting from an increase in the number of directors or
from the failure by the shareholders to elect the full authorized number of
directors, may be filled by the Board of Directors. If the directors remaining
in office do not constitute a quorum, the directors may fill the vacancy by the
affirmative vote of a majority of the remaining directors or by the sole
remaining director. If the vacant office was held by
7
<PAGE>
a director elected by voting group, only the remaining director or directors
elected by that voting group or the holders of shares of that voting group are
entitled to fill the vacancy.
Section 8.2. Initial Board of Directors. The number of directors
----------- --------------------------
constituting the initial Board of Directors of the Corporation shall be six (6)
and the names and addresses of the persons who are to serve as directors of the
Corporation until the first meeting of shareholders or until their successors
are elected and qualify are:
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Carl M. Hill 1415 Melchor Road
Albemarle, NC 28001
C.A. Holbrook 1700 Bellamy Circle
Albemarle, NC 28001
Joel A. Huneycutt P. O. Box 167, Renee Ford Road
Locust, NC 28097
Douglas D. Stokes 1009 Ridge Street
Albemarle, NC 28001
R. Ronald Swanner 1415 North Ridge Drive
Albemarle, NC 28001
Greg E. Underwood 32283-B Austin Road
New London, NC 28127
</TABLE>
This the 14th day of May, 1996.
By: ________________________________________
Carl M. Hill, Incorporator
8
<PAGE>
BYLAWS
OF
SOUTH STREET FINANCIAL CORP.
ARTICLE I
OFFICES
-------
Section 1. Principal Office. The principal office of the corporation
----------------
shall be located at such place as the Board of Directors may fix from time to
time.
Section 2. Registered Office. The registered office of the corporation
-----------------
required by law to be maintained in the State of North Carolina may be, but need
not be, identical with the principal office.
Section 3. Other Offices. The corporation may have offices at such other
-------------
places, either within or without the State of North Carolina, as the Board of
Directors may designate or as the affairs of the corporation may require from
time to time.
ARTICLE II
MEETINGS OF SHAREHOLDERS
------------------------
Section 1. Place of Meetings. All meetings of shareholders shall be held
-----------------
at the principal office of the corporation, or at such other place, either
within or without the State of North Carolina, as shall in each case be (i)
fixed by the Chief Executive Officer, the President, the Chairman of the Board,
or the Board of Directors and designated in the notice of the meeting or (ii)
agreed upon by a majority of the shareholders entitled to vote at the meeting.
Section 2. Annual Meetings. The annual meeting of shareholders shall be
---------------
held during the first five (5) calendar months following the end of the
corporation's fiscal year, on any day (except Saturday, Sunday, or a legal
holiday) during that period as shall be determined by the Board of Directors,
for the purpose of electing directors of the corporation and for the transaction
of such other business as may be properly brought before the meeting.
Section 3. Substitute Annual Meeting. If the annual meeting shall not be
-------------------------
held within the time designated by these Bylaws, a substitute annual meeting may
be called in accordance with the provisions of Section 4 of this Article II. A
meeting so called shall be designated and treated for all purposes as the annual
meeting.
Section 4. Special Meetings. Special meetings of the shareholders may be
----------------
called at any time by the Chief Executive Officer, the President, the Chairman
of the Board of Directors or the Board of Directors.
<PAGE>
Section 5. Notice of Meetings. Written notice stating the date, time, and
------------------
place of the meeting shall be given not less than ten (10) nor more than sixty
(60) days before the date of any shareholders' meeting, either by personal
delivery, or by mail by or at the direction of the Chief Executive Officer, the
President, the Chairman of the Board of Directors or the Board of Directors, to
each shareholder entitled to vote at such meeting, provided that such notice
must be given to all shareholders with respect to any meeting at which a merger
or share exchange is to be considered and in such other instances as required by
law. If mailed, such notice shall be deemed to be effective when deposited in
the United States mail, correctly addressed to the shareholder at the
shareholder's address as it appears on the current record of shareholders of the
corporation, with postage thereon prepaid.
In the case of a special meeting, the notice of meeting shall include a
description of the purpose or purposes for which the meeting is called; but, in
the case of an annual or substitute annual meeting, the notice of meeting need
not include a description of the purpose or purposes for which the meeting is
called unless such a description is required by the provisions of Chapter 55 of
the North Carolina General Statutes.
When a meeting is adjourned to a different date, time or place, notice need
not be given of the new date, time or place if the new date, time or place is
announced at the meeting before adjournment and if a new record date is not
fixed for the adjourned meeting. If a new record date is fixed for the
adjourned meeting (which must be done if the new date is more than 120 days
after the date of the original meeting), notice of the adjourned meeting must be
given as provided in this Section 5 to persons who are shareholders as of the
new record date.
Section 6. Waiver of Notice. Any shareholder may waive notice of any
----------------
meeting before or after the meeting. The waiver must be in writing, signed by
the shareholder, and delivered to the corporation for inclusion in the minutes
or filing with the corporate records. A shareholder's attendance, in person or
by proxy, at a meeting (i) waives objection to lack of notice or defective
notice of the meeting, unless the shareholder or his proxy at the beginning of
the meeting objects to holding the meeting or transacting business at the
meeting, and (ii) waives objection to consideration of a particular matter at
the meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder or his proxy objects to considering the matter
before it is voted upon.
Section 7. Shareholders' List. Before each meeting of shareholders, the
------------------
Secretary of the corporation shall prepare an alphabetical list of the
shareholders entitled to notice of such meeting. The list shall be arranged by
voting group (and within each voting group by class or series of shares) and
show the address of and number of shares held by each shareholder. The list
shall be kept on file at the principal office of the corporation, or at a place
identified in the meeting notice in the city where the meeting will be held, for
the period beginning two (2) business days after notice of the meeting is given
and continuing through the meeting, and shall be available for inspection by any
shareholder, his agent or attorney, at any time during regular business hours.
The list shall also be available at the meeting and shall be subject to
inspection by any shareholder, his agent or attorney, at any time during the
meeting or any adjournment thereof.
2
<PAGE>
Section 8. Fixing Record Date. The Board of Directors may fix a date
------------------
selected by them as the record date for one (1) or more voting groups in order
to determine the shareholders entitled to notice of a shareholders' meeting, to
vote, or to take any other action. Such record date may not be more than
seventy (70) days before the meeting or action requiring a determination of
shareholders. A determination of shareholders entitled to notice of or to vote
at a shareholders' meeting is effective for any adjournment of the meeting
unless the Board of Directors fixes a new record date for the adjourned meeting,
which it must do if the meeting is adjourned to a date more than 120 days after
the date fixed for the original meeting.
If no record date is fixed by the Board of Directors for the determination
of shareholders entitled to notice of or to vote at a meeting of shareholders,
the close of business on the day before the first notice of the meeting is
delivered to shareholders shall be the record date for such determination of
shareholders.
Section 9. Voting Groups. All shares of one (1) or more classes or series
-------------
that, under the Articles of Incorporation or the North Carolina Business
Corporation Act, are entitled to vote and be counted together collectively on a
matter at a meeting of shareholders constitute a voting group. All shares
entitled by the Articles of Incorporation or the North Carolina Business
Corporation Act to vote generally on a matter are for that purpose a single
voting group. Classes or series of shares shall not be entitled to vote
separately by voting group unless expressly authorized by the Articles of
Incorporation or specifically required by law.
Section 10. Quorum. Shares entitled to vote as a separate voting group
------
may take action on a matter at the meeting only if a quorum of those shares
exists. A majority of the votes entitled to be cast on the matter by the voting
group constitutes a quorum of that voting group for action on that matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
In the absence of a quorum at the opening of any meeting of shareholders,
such meeting may be adjourned from time to time by the vote of a majority of the
votes cast on the motion to adjourn; and, subject to the provisions of Section 5
of this Article II, at any adjourned meeting any business may be transacted that
might have been transacted at the original meeting if a quorum exists with
respect to the matter proposed.
Section 11. Proxies. Shares may be voted either in person or by one (1)
-------
or more proxies authorized by a written appointment of proxy signed by the
shareholder or by his duly authorized attorney in fact. An appointment of proxy
is valid for eleven months from the date of its execution, unless a different
period is expressly provided in the appointment form.
Section 12. Voting of Shares. Subject to the provisions of the Articles
----------------
of Incorporation, each outstanding share shall be entitled to one (1) vote on
each matter voted on at a meeting of shareholders.
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Except in the election of directors as governed by the provisions of
Section 4 of Article III, if a quorum exists, action on a matter by a voting
group is approved if the votes cast within the voting group favoring the action
exceed the votes cast opposing the action, unless a greater vote is required by
law or the Articles of Incorporation or these Bylaws.
Absent special circumstances, shares of the corporation are not entitled to
vote if they are owned, directly or indirectly, by a second corporation in which
the corporation owns, directly or indirectly, a majority of the shares entitled
to vote for directors of the second corporation; provided that this provision
does not limit the power of the corporation or such second corporation to vote
shares held by it in a fiduciary capacity.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 1. General Powers. All corporate powers shall be exercised by or
--------------
under the authority of, and the business and affairs of the corporation shall be
managed under the direction of, the Board of Directors.
Section 2. Number and Qualification. The number of directors of the
------------------------
Corporation shall not be less than five (5) nor more than fifteen (15), with the
exact number to be fixed from time to time by the Board of Directors.
Section 3. Nominations. At any meeting of shareholders at which directors
-----------
are to be elected, nominations for election to the Board of Directors may be
made by the Board of Directors or, subject to the conditions described below, by
any holder of shares entitled to be voted at that meeting in the election of
directors. To be eligible for consideration at the meeting of shareholders, all
nominations, other than those made by the Board of Directors, shall be in
writing and must be delivered to Secretary of the corporation not less than
fifty (50) days nor more than ninety (90) days prior to the meeting at which
such nominations will be made; provided, however, that if less than twenty-one
(21) days' notice of the meeting is given to shareholders, such nominations must
be delivered to the Secretary of the corporation not later than the close of
business on the seventh day following the day on which the notice of meeting was
mailed.
Section 4. Election. Except as provided in Section 7 of this Article III,
--------
the directors shall be elected at the annual meeting of shareholders. Those
persons who receive the highest number of votes at a meeting at which a quorum
is present shall be deemed to have been elected.
Section 5. Terms of Directors. Each initial director shall hold office
------------------
until the earliest of the first shareholders' meeting at which directors are
elected, or until such director's death, resignation, or removal.
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At all times that the number of directors is less than nine (9), each
director shall be elected to a term ending as of the next succeeding annual
meeting of shareholders or until his or her earlier death, resignation,
retirement, removal or disqualification or until his or her successor shall be
elected and shall qualify.
In the first election of directors that the total number of directors is
nine (9) or more, the directors shall be divided into three (3) classes, as
nearly equal as possible in number as may be, to serve in the first instance for
terms of one (1), two (2) and three (3) years, respectively, from the date such
class of directors takes office or until their earlier death, resignation,
retirement, removal or disqualification or until their successors shall be
elected and shall qualify, and thereafter the successors in each class of
directors shall be elected for terms of three (3) years or until their earlier
death, resignation, retirement, removal, or disqualification or until their
successors shall be elected and shall qualify. In the event of any increase or
decrease in the number of directors at a time that the directors are so
classified, the additional or eliminated directorships shall be classified or
chosen so that all classes of directors shall remain or become as nearly equal
as possible in number.
Notwithstanding the provisions of this Section 5, a decrease in the number
of directors does not shorten an incumbent director's term. Despite the
expiration of a director's term, such director shall continue to serve until a
successor shall be elected and qualified or until there is a decrease in the
number of directors.
Section 6. Removal. Any director may be removed from office at any time,
-------
with or without cause, by a vote of the shareholders if the number of votes cast
to remove such director exceeds the number of votes cast not to remove him. If
a director is elected by a voting group of shareholders, only the shareholders
of that voting group may participate in the vote to remove him. A director may
not be removed by the shareholders at a meeting unless the notice of that
meeting states that the purpose, or one (1) of the purposes, of the meeting is
removal of the director. If any directors are so removed, new directors may be
elected at the same meeting.
Section 7. Vacancies. Any vacancy occurring in the Board of Directors,
---------
including without limitation a vacancy resulting from an increase in the number
of directors or from the failure by the shareholders to elect the full
authorized number of directors, may be filled by the Board of Directors. If the
directors remaining in office do not constitute a quorum, the directors may fill
the vacancy by the affirmative vote of a majority of the remaining directors or
by the sole remaining director. If the vacant office was held by a director
elected by voting group, only the remaining director or directors elected by
that voting group or the holders of shares of that voting group are entitled to
fill the vacancy. A director elected to fill a vacancy shall be elected to
serve the remaining term of the director replaced, or if a director is not
elected to replace a previously elected director, the new director shall be
elected to serve until the next shareholders' meeting at which directors are
elected.
Section 8. Chairman of the Board of Directors. There may be a Chairman of
----------------------------------
the Board of Directors and a Vice Chairman of the Board of Directors elected by
the directors from their number at any meeting of the Board of Directors. The
Chairman and Vice Chairman shall serve in such positions at the pleasure of the
Board of Directors. The Chairman shall preside at all meetings of the Board of
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Directors and shareholders, serve as a member of any executive committee of the
Board of Directors, and perform such other duties as may be directed by the
Board of Directors.
In the absence of the Chairman, the Vice Chairman shall preside at meetings
of directors or shareholders.
Section 9. Compensation. The Board of Directors may provide for the
------------
compensation of directors for their services as such and for the payment or
reimbursement of any or all expenses incurred by them in connection with such
services.
Section 10. Age Limitation on Directors. A person who is seventy-five
---------------------------
(75) years of age or older shall not be eligible for election, re-election,
appointment, or re-appointment to the Board of Directors. A director shall not
serve as such beyond the annual meeting of the corporation immediately following
the director becoming seventy-five (75) years of age.
ARTICLE IV
MEETINGS AND COMMITTEES OF DIRECTORS
------------------------------------
Section 1. Regular Meetings. A regular meeting of the Board of Directors
----------------
shall be held immediately after, and at the same place as, the annual meeting of
shareholders. In addition, the Board of Directors may provide, by resolution,
the time and place, either within or without the State of North Carolina, for
the holding of additional regular meetings.
Section 2. Special Meetings. Special meetings of the Board of Directors
----------------
may be called by or at the request of the Chairman of the Board or the President
if such officer is also a director, or by any three (3) or more directors. Such
a meeting may be held either within or without the State of North Carolina, as
fixed by the person or persons calling the meeting.
Section 3. Notice of Meetings. Regular meetings of the Board of Directors
------------------
may be held without notice. The person or persons calling a special meeting of
the Board of Directors shall, at least two (2) days before the meeting, give or
cause to be given notice thereof by any usual means of communication. Such
notice need not specify the purpose for which the meeting is called. Any duly
convened regular or special meeting may be adjourned by the directors to a later
time without further notice.
Section 4. Waiver of Notice. Any director may waive notice of any meeting
----------------
before or after the meeting. The waiver must be in writing, signed by the
director entitled to the notice, and be delivered to the corporation for
inclusion in the minutes or for filing with the corporate records. A director's
attendance at or participation in a meeting waives any required notice of such
meeting unless the director at the beginning of the meeting, or promptly upon
arrival, objects to holding the meeting or to transacting business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting.
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Section 5. Quorum. Unless the Articles of Incorporation or these Bylaws
------
provide otherwise, a majority of the number of directors fixed by or pursuant to
these Bylaws shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, or if no number is so fixed, a majority of
the number of directors in office immediately before the meeting begins shall
constitute a quorum.
Section 6. Manner of Acting. Except as otherwise provided in the Articles
----------------
of Incorporation or these Bylaws, including Section 9 of this Article IV, the
affirmative vote of a majority of the directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 7. Presumption of Assent. A director who is present at a meeting
---------------------
of the Board of Directors or a committee of the Board of Directors when
corporate action is taken is deemed to have assented to the action taken unless
(i) he objects at the beginning of the meeting, or promptly upon his arrival, to
holding it or to transacting business at the meeting, or (ii) his dissent or
abstention from the action taken is entered in the minutes of the meeting, or
(iii) he files written notice of his dissent or abstention with the presiding
officer of the meeting before its adjournment or with the corporation
immediately after the adjournment of the meeting. Such right of dissent or
abstention is not available to a director who votes in favor of the action
taken.
Section 8. Action Without Meeting. Action required or permitted to be
----------------------
taken at a meeting of the Board of Directors may be taken without a meeting if
the action is taken by all members of the Board of Directors. The action must
be evidenced by one (1) or more written consents signed by each director before
or after such action, describing the action taken, and included in the minutes
or filed with the corporate records.
Section 9. Committees of the Board of Directors. The Board of Directors
------------------------------------
may create such committees of the Board of Directors as it shall consider
appropriate, including without limitation those committees specifically provided
for in these Bylaws. The creation of a committee of the Board of Directors and
appointment of members to it must by approved by the greater of (i) a majority
of the number of directors in office when the action is taken or (ii) the number
of directors required to take action pursuant to Section 6 of this Article IV.
Each committee of the Board of Directors must have two (2) or more members and,
to the extent authorized by law, shall have such duties and authority as may be
described in these Bylaws or otherwise specified by the Board of Directors.
Each committee member shall serve at the pleasure of the Board of Directors.
The provisions in these Bylaws governing meetings, actions without meeting and
other requirements of the Board of Directors shall also apply to any committees
of the Board of Directors established pursuant to these Bylaws.
Section 10. Executive Committee. There may be a standing committee of the
-------------------
Board of Directors to be known as the Executive Committee and consisting of not
fewer than three (3) directors, one (1) of whom shall be the Chairman of the
Board of Directors and one (1) of whom shall be the President of the
corporation, if such officer is also a director. Except as limited by Section 9
of this Article IV or otherwise limited by law, the Executive Committee is
empowered to act for and on behalf of the Board of Directors in any and all
matters in the interim between meetings of the Board of Directors. Within the
powers conferred upon it, action by the Executive Committee shall be as binding
upon the corporation as if performed by the full Board of Directors. Such
actions shall be reported to
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the Board of Directors for review at its next meeting following such action.
The committee shall meet as often as it considers necessary or advisable.
Section 11. Audit Committee. There may be a standing committee of the
---------------
Board of Directors to be known as the Audit Committee and consisting of not
fewer than three (3) directors. The Audit Committee shall supervise examination
of the assets and the liabilities and the internal audit program of the
corporation and its subsidiaries, cause outside audits to be performed on the
financial statements of the corporation, and shall make periodic reports to the
Board of Directors.
ARTICLE V
OFFICERS
--------
Section 1. Officers of the Corporation. The officers of the corporation
---------------------------
shall consist of a President, a Secretary, a Treasurer, and such Vice Presidents
or other officers (including assistant officers) as may from time to time be
appointed by or under the authority of the Board of Directors. Any two (2) or
more offices may be held by the same person, but no officer may act in more than
one (1) capacity where action of two (2) or more officers is required.
Section 2. Appointment and Term. The officers of the corporation shall be
--------------------
appointed by the Board of Directors or by a duly appointed officer authorized by
the Board of Directors to appoint one (1) or more officers. Each officer shall
hold office until his death, resignation, retirement, removal, disqualification,
or his successor shall have been appointed.
Section 3. Compensation of Officers. The compensation of all officers of
------------------------
the corporation shall be fixed by or under the authority of the Board of
Directors, and no officer shall serve the corporation in any other capacity and
receive compensation therefor unless such additional compensation shall be duly
authorized. The appointment of an officer does not itself create contract
rights.
Section 4. Removal. Any officer may be removed by the Board of Directors
-------
at any time with or without cause; but such removal shall not itself affect the
officer's contract rights, if any, with the corporation except to the extent, if
any, specified in any such contract.
Section 5. Resignation. An officer may resign at any time by
-----------
communicating his resignation to the corporation, orally or in writing. A
resignation is effective when communicated unless it specifies in writing a
later effective date. If a resignation is made effective at a later date that
is accepted by the corporation, the Board of Directors may fill the pending
vacancy before the effective date if the Board of Directors provides that the
successor does not take office until the effective date. An officer's
resignation does not affect the corporation's contract rights, if any, with the
officer except to the extent, if any, specified in any such contract.
Section 6. Bonds. The Board of Directors may by resolution require any
-----
officer, agent, or employee of the corporation to give bond to the corporation,
with sufficient sureties, conditioned on the
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faithful performance of the duties of his respective office or position, and to
comply with such other conditions as may from time to time be required by the
Board of Directors.
Section 7. President. The President shall be the principal executive
---------
officer of the corporation and, subject to the control of the Board of
Directors, shall in general supervise and control all of the business and
affairs of the corporation. He shall sign, with the Secretary, an Assistant
Secretary, or any other proper officer of the corporation thereunto authorized
by the Board of Directors, certificates for shares of the corporation, any
deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these Bylaws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed, and in general he shall
perform all duties incident to the office of the President and such other duties
as may be prescribed by the Board of Directors from time to time. The President
shall be entitled to attend all regular and special meetings and meetings of
committees of the Board of Directors. If the President of the corporation is
also a director of the corporation, he shall serve as a member of the Executive
Committee.
Section 8. Vice Presidents. In the absence of the President or in the
---------------
event of his death, inability or refusal to act, the Vice Presidents, unless
otherwise determined by the Board of Directors, shall perform the duties of the
President, and when so acting shall have all the powers of and be subject to all
the restrictions upon the President. Any Vice President (or Assistant Vice
President) may sign, with the Secretary, an Assistant Secretary, or any other
proper officer of the corporation thereunto authorized by the Board of
Directors, certificates for shares of the corporation and any other instruments
which may be signed by the President, and shall perform such other duties as
from time to time may be prescribed by the President or Board of Directors.
Section 9. Secretary. The Secretary shall: (i) keep the minutes of the
---------
meetings of shareholders, of the Board of Directors, and of all committees of
the Board of Directors, in one or more books provided for that purpose; (ii) see
that all notices are duly given in accordance with the provisions of these
Bylaws or as required by law; (iii) maintain and authenticate the records of the
corporation and be custodian of the seal of the corporation and see that the
seal of the corporation is affixed to all documents the execution of which on
behalf of the corporation under its seal is duly authorized; (iv) sign with the
President or a Vice President, certificates for shares of the corporation, the
issuance of which shall have been authorized by resolution of the Board of
Directors; (v) maintain or cause to be maintained, and have general charge of,
the stock transfer books of the corporation; (vi) prepare or cause to be
prepared shareholder lists prior to each meeting of shareholders as required by
law; (vii) attest the signature or certify the incumbency or signature of any
officer of the corporation; and (viii) in general perform all duties incident to
the office of secretary and such other duties as from time to time may be
prescribed by the President or by the Board of Directors.
Section 10. Treasurer. The Treasurer shall be, and may be designated as
---------
such as, the corporation's Chief Financial Officer, and shall: (i) have charge
and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in the name
of the corporation in such depositories as shall be selected in accordance with
the provisions of Section 4 of Article VI of these Bylaws; (ii) maintain, or
cause to be maintained, appropriate accounting records as required by
9
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law; (iii) prepare, or cause to be prepared, annual financial statements of the
corporation that include a balance sheet as of the end of the fiscal year and
income and cash flow statement for that year, which statements, or a written
notice of their availability, shall be mailed to each shareholder within 120
days after the end of such fiscal year; and (iv) in general perform all of the
duties incident to the office of treasurer and such other duties as from time to
time may be prescribed by the President or by the Board of Directors.
Section 11. Assistant Officers. In the absence of a duly appointed
------------------
officer of the corporation, or in the event of his death, inability or refusal
to act, any person appointed by the Board of Directors and designated by title
as an assistant to that officer, unless otherwise determined by the Board of
Directors, may perform the duties of, and when so acting shall have all the
powers of and be subject to all the restrictions upon, that officer. Such
assistant officers shall perform such other duties as from time to time may be
prescribed by the President or by the Board of Directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS, AND DEPOSITS
--------------------------------------
Section 1. Contracts. The Board of Directors may authorize any officer or
---------
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and such
authorization may be general or confined to specific instances. Also, the Board
of Directors may limit, condition, restrict or deny such authority to any
officer or officers, or any agent or agents.
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 and Drafts. All checks, drafts, or other orders for the
-----------------
payment of money, issued in the name of the corporation, shall be signed by such
officer or officers, agent or agents of the corporation and 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 deposited from time to time to the credit of the corporation in such
depositories as may be selected by or under the authority of the Board of
Directors.
ARTICLE VII
SHARES AND THEIR TRANSFER
-------------------------
Section 1. Certificate For Shares. The Board of Directors may authorize
----------------------
the issuance of some or all of the shares of the corporation's classes or series
without issuing certificates to represent such shares. If shares are
represented by certificates, the certificates shall be in such form as required
by law
10
<PAGE>
and as determined by the Board of Directors. Certificates shall be signed,
either manually or in facsimile, by the President or a Vice President, and by
the Secretary or Treasurer or an Assistant Secretary or an Assistant Treasurer.
All certificates for shares shall be consecutively numbered or otherwise
identified and entered into the stock transfer books of the corporation. When
shares are represented by certificates, the corporation shall issue and deliver,
to each shareholder to whom such shares have been issued or transferred,
certificates representing the shares owned by him. When shares are not
represented by certificates, then within a reasonable time after the issuance or
transfer of such shares, the corporation shall send the shareholder to whom such
shares have been issued or transferred a written statement of the information
required by law to be on certificates.
Section 2. Stock Transfer Books. The corporation shall keep or cause to
--------------------
be kept a book or set of books, to be known as the stock transfer books of the
corporation, containing the name of each shareholder of record, together with
such shareholder's address and the number and class or series of shares held by
him. Transfers of shares of the corporation shall be made only on the stock
transfer books of the corporation (i) by the holder of record thereof or by his
legal representative, who shall provide proper evidence of authority to
transfer; (ii) by his attorney authorized to effect such transfer by power of
attorney duly executed and filed with the Secretary; and (iii) on surrender for
cancellation of the certificate for such shares (if the shares are represented
by certificates).
Section 3. Lost Certificates. The Board of Directors may direct a new
-----------------
certificate to be issued in place of any certificate theretofore issued by the
corporation claimed to have been lost or destroyed, upon receipt of an affidavit
of such fact from the person claiming the certificate to have been lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors shall require that the owner of such lost or destroyed certificate, or
his legal representative, give the corporation a bond in such sum and with such
surety or other security as the Board of Directors may direct as indemnity
against any claims that may be made against the corporation with respect to the
certificate claimed to have been lost or destroyed, except where the Board of
Directors by resolution finds that in the judgment of the Board of Directors the
circumstances justify omission of a bond.
Section 4. Distribution or Share Dividend Record Date. The Board of
------------------------------------------
Directors may fix a date as the record date for determining shareholders
entitled to a distribution or share dividend. If no record date is fixed by the
Board of Directors for such determination, it is the date the Board of Directors
authorizes the distribution or share dividend.
Section 5. Holder of Record. Except as otherwise required by law, the
----------------
corporation may treat the person in whose name the shares stand of record on its
books as the absolute owner of the shares and the person exclusively entitled to
receive notification and distributions, to vote, and to otherwise exercise the
rights, powers, and privileges of ownership of such shares.
Section 6. Shares Held by Nominees. The corporation shall recognize the
-----------------------
beneficial owner of shares registered in the name of the nominee as the owner
and shareholder of such shares for certain purposes if the nominee in whose name
such shares are registered files with the Secretary a written certificate in a
form prescribed by the corporation, signed by the nominee, indicating the
following: (i) the name, address, and taxpayer identification number of the
nominee; (ii) the name, address, and taxpayer identification number of the
beneficial owner; (iii) the number and class or series of shares
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<PAGE>
registered in the name of the nominee as to which the beneficial owner shall be
recognized as the shareholder; and (iv) the purposes for which the beneficial
owner shall be recognized as the shareholder.
The purposes for which the corporation shall recognize the beneficial owner
as the shareholder may include the following: (i) receiving notice of, voting
at, and otherwise participating in shareholders' meetings; (ii) executing
consents with respect to the shares; (iii) exercising dissenters' rights under
the North Carolina Business Corporation Act; (iv) receiving distributions and
share dividends with respect to the shares; (v) exercising inspection rights;
(vi) receiving reports, financial statements, proxy statements, and other
communications from the corporation; (vii) making any demand upon the
corporation required or permitted by law; and (viii) exercising any other rights
or receiving any other benefits of a shareholder with respect to the shares.
The certificate shall be effective ten (10) business days after its receipt
by the corporation and until it is changed by the nominee, unless the
certificate specifies a later effective time or an earlier termination date.
If the certificate affects less than all of the shares registered in the
name of the nominee, the corporation may require the shares affected by the
certificate to be registered separately on the books of the corporation and be
represented by a share certificate that bears a conspicuous legend stating that
there is a nominee certificate in effect with respect to the shares represented
by that share certificate.
ARTICLE VIII
GENERAL PROVISIONS
------------------
Section 1. Distributions. The Board of Directors may from time to time
-------------
authorize, and the corporation may grant, distributions and share dividends to
its shareholders pursuant to law and subject to any provisions with respect
thereto in its Articles of Incorporation.
Section 2. Seal. The corporate seal of the corporation shall consist of
----
two concentric circles between which is the name of the corporation and in the
center of which is inscribed SEAL; and such seal, as impressed or affixed on the
margin hereof, is hereby adopted as the corporate seal of the corporation.
Section 3. Fiscal Year. The fiscal year of the corporation shall be fixed
-----------
by the Board of Directors.
Section 4. Amendments. Except as otherwise provided in the Articles of
----------
Incorporation or by law, these Bylaws may be amended or repealed and new Bylaws
may be adopted by the Board of Directors.
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No Bylaw adopted, amended, or repealed by the shareholders shall be
readopted, amended, or repealed by the Board of Directors, unless the Articles
of Incorporation or a Bylaw adopted by the shareholders authorizes the Board of
Directors to adopt, amend, or repeal that particular Bylaw or the Bylaws
generally.
Section 5. Definitions. Unless the context otherwise requires, terms used
-----------
in these Bylaws shall have the meanings assigned to them in the North Carolina
Business Corporation Act to the extent defined therein.
ARTICLE IX
INDEMNIFICATION
---------------
In addition to any indemnification required or permitted by law, and except
as otherwise provided in these Bylaws, any person who at any time serves or has
served as a director, officer, employee or agent of the corporation and any such
person who serves or has served at the request of the corporation as a director,
officer, employee, partner, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or as a trustee or
administrator under an employee benefit plan, shall have a right to be
indemnified by the corporation to the full extent allowed by applicable law
against liability and litigation expense arising out of such status or
activities in such capacity. "Liability and litigation expense" shall include
costs and expenses of litigation (including reasonable attorneys' fees),
judgments, fines and amounts paid in settlement which are actually and
reasonably incurred in connection with or as a consequence of any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, including appeals.
Promptly after the final disposition or termination of any matter which
involves liability or litigation expense as described above or at such earlier
time as it sees fit, the corporation shall determine whether any person
described in this Article IX is entitled to indemnification thereunder. Such
determination shall be limited to the following issues: (i) whether the persons
to be indemnified are persons described in this Article IX, (ii) whether the
liability or litigation expense incurred arose out of the status or activities
of such persons as described in this Article IX, (iii) whether liability was
actually incurred and/or litigation expense was actually and reasonably
incurred, and (iv) whether the indemnification requested is permitted by
applicable law. Such determination shall be made by a majority vote of
directors who were not parties to the action, suit or proceeding (or, in
connection with "threatened" actions, suits or proceedings, who were not
"threatened parties"). If at least two such disinterested directors are not
obtainable, or, even if obtainable, if at least half of the number of
disinterested directors so direct, such determination shall be made by
independent legal counsel in written opinion.
Litigation expense incurred by a person described in this Article IX in
connection with a matter described in this Article IX may be paid by the
corporation in advance of the final disposition or termination of such matter,
if the corporation receives an undertaking, dated, in writing and signed by the
person to be indemnified, to repay all such sums unless such person is
ultimately determined to be entitled to be indemnified by the corporation as
provided in this Article IX. Requests for payments in
13
<PAGE>
advance of final disposition or termination shall be submitted in writing unless
this requirement is waived by the corporation.
Notwithstanding the foregoing, no advance payment shall be made as to any
payment or portion of a payment for which the determination is made that the
person requesting payment will not be entitled to indemnification. Such
determination may be made only by a majority vote of disinterested directors or
by independent legal counsel as next provided. If there are not at least two
disinterested directors, the notice of all requests for advance payment shall be
delivered for review to independent legal counsel for the corporation. Such
counsel shall have the authority to disapprove any advance payment or portion of
a payment for which it appears that the person requesting payment will not be
entitled to indemnification.
The corporation shall not be obligated to indemnify persons described in
this Article IX for any amounts paid in settlement unless the corporation
consents in writing to the settlement. The corporation shall not unreasonably
withhold its consent to proposed settlements. The corporation's consent to a
proposed settlement shall not constitute an agreement by the corporation that
any person is entitled to indemnification thereunder. The corporation may waive
the requirement of this section for its written consent as fairness and equity
may require.
A person described in this Article IX may apply to the corporation in
writing for indemnification or advance expenses. Such applications shall be
addressed to the Secretary or, in the absence of the Secretary, to any officer
of the corporation. The corporation shall respond in writing to such
applications as follows: to a request for indemnity under this Article IX,
within ninety days after receipt of the application; to a request for advance
expenses under this Article IX, within fifteen days after receipt of the
application.
If any action is necessary or appropriate to authorize the corporation to
pay the indemnification required by these Bylaws, the Board of Directors shall
take such action, including (i) making a good faith evaluation of the
indemnification request, (ii) giving notice to, and obtaining approval by, the
shareholders of the corporation, and (iii) taking any other action.
The right to indemnification or advance expenses provided herein shall be
enforceable in any court of competent jurisdiction. A legal action may be
commenced if a claim for indemnity or advance expenses is denied in whole or in
part, or upon the expiration of the time periods provided above. In any such
action, if the claimant establishes the right to indemnification, he or she
shall also have the right to be indemnified against the litigation expense
(including, without limitation, reasonable attorneys' fees) of such action.
As provided by N.C. Gen. Stat. (S)55-8-57, the corporation shall have the
power to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or who is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, or as a trustee or administrator under an employee benefit plan,
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not the corporation
has the power to indemnify him against such liability.
14
<PAGE>
The right to indemnification provided herein shall not be deemed exclusive
of any other rights to which any persons seeking indemnity may be entitled apart
from the provisions of this bylaw, except there shall be no right to
indemnification as to any liability or litigation expense for which such person
is entitled to receive payment under any insurance policy other than a
directors' and officers' liability insurance policy maintained by the
corporation. Such right inures to the benefit of the heirs and legal
representatives of any persons entitled to such right. Any person who at any
time after the adoption of this bylaw serves or has served in any status or
capacity described in this Article IX shall be deemed to be doing or to have
done so in reliance upon, and as consideration for, the right of indemnification
provided herein. Any repeal or modification hereof shall not affect any rights
or obligations then existing. The right provided herein shall not apply as to
persons serving institutions which are hereafter merged into or combined with
the corporation, except after the effective date of such merger or combination
and only as to status and activities after such date.
If this Article or any portion hereof shall be invalidated on any ground by
any court or agency of competent jurisdiction, then the corporation shall
nevertheless indemnify each person described in this Article IX to the full
extent permitted by the portion of this Article that is not invalidated and also
to the full extent (not exceeding the benefits described herein) permitted or
required by other applicable law.
Adopted this the day of , 1996.
--- -------------
--------------------------
Secretary
15
<PAGE>
Exhibit 5
[LETTERHEAD OF BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, LLP. APPEARS HERE]
May 22, 1996
Board of Directors
South Street Financial Corp.
155 West South Street
Albemarle, North Carolina 28001
RE: Registration Statement on Form S-1 under the Securities Act of 1933,
as amended
Gentlemen:
As special counsel to South Street Financial Corp. (the "Holding Company"),
the proposed parent holding company of Home Savings Bank of Albemarle, Inc.,
S.S.B. ("Home"), Albemarle, North Carolina, we are rendering this opinion to you
in connection with the acquisition by the Holding Company of Home upon the
conversion of Home Savings Bank of Albemarle, S.S.B. from a North Carolina-
chartered mutual savings bank to a North Carolina-chartered capital stock
savings bank (the "Conversion"). As part of the Conversion, the Holding Company
will file with the Securities and Exchange Commission a Registration Statement
on Form S-1 (the "Registration Statement") under the Securities Act of 1933, as
amended, for the offering and sale by the Holding Company of its no par common
stock having an estimated aggregate dollar value between $28,900,000 and
$39,100,000 (the "Shares").
In our capacity as special counsel, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the Articles of
Incorporation, Bylaws and corporate resolutions of the Holding Company, the Plan
of Holding Company Conversion, the Registration Statement and all exhibits
thereto and the relevant provisions of Chapters 54C and 55 of the North Carolina
General Statutes and the Securities Act of 1933, as amended, and the regulations
promulgated under all the aforesaid statutes as we have considered necessary as
a basis for the opinions given herein. In addition, we have made reasonable
inquiries of the officers of Home and the Holding Company as to all relevant
items. In all examinations of documents, we have assumed the genuineness of all
original documents and all signatures and the conformity to original documents
of all copies submitted to us as certified, conformed or photostatic copies. On
the basis of such examination, we are of the opinion that, when the Holding
Company has received full payment for the Shares as described in the
Registration Statement, all requisite corporate action will have been taken with
respect to the issuance and sale of
<PAGE>
Board of Directors
South Street Financial Corp.
May 22, 1996
Page 2
the Shares, and the Shares will be validly authorized and issued, fully paid and
nonassessable shares of common stock of the Holding Company.
This opinion is furnished by us solely for your benefit and for the benefit
of the purchasers of the Shares in connection with the Conversion and may not be
quoted or relied upon by, nor copies be delivered to, any person or entity, or
used for any other purpose, without our prior express written consent.
We hereby consent to the use of this opinion in connection with the
registration of the offering and sale of the Shares with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, and to the
reference to us in the Registration Statement and the Prospectus included
therein.
Very truly yours,
BROOKS, PIERCE, McLENDON,
HUMPHREY & LEONARD, L.L.P.
By: /s/ Edward C. Winslow III
--------------------------------------
Edward C. Winslow III
<PAGE>
Exhibit 8(a)
[LETTERHEAD OF BROOKS,PIERCE,MCLENDON,HUMPHREY & LEONARD, L.L.P. APPEARS HERE]
May 22, 1996
Board of Directors
Home Savings Bank of Albemarle, Inc., S.S.B.
155 West South Street
Albemarle, North Carolina 28001
Re: Conversion of Home Savings Bank of Albemarle, S.S.B. from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered
stock savings bank and its simultaneous acquisition by South Street
Financial Corp., a North Carolina savings bank holding company
Members of the Board:
You have requested our opinions regarding certain income tax consequences
in connection with the proposed conversion of Home Savings Bank of Albemarle,
S.S.B. ("Home Mutual") from a North Carolina-chartered mutual savings bank with
federally insured deposit accounts to Home Savings Bank of Albemarle, Inc.,
S.S.B., a North Carolina-chartered stock savings bank with federally insured
deposit accounts ("Home"), and the simultaneous acquisition of Home as a wholly-
owned subsidiary by South Street Financial Corp., a savings bank holding company
organized under North Carolina law ("Holding Company"). This reorganization and
conversion of Home Mutual and acquisition of Home by Holding Company shall be
referred to as the "Conversion". Terms not otherwise defined in this letter
shall have the meanings assigned to them in the Plan of Conversion adopted by
the Board of Directors of Home Mutual on May 14, 1996 (the "Plan").
In connection with our opinions, we have reviewed copies of applications
filed by Home Mutual and the Holding Company with the Administrator, North
Carolina Savings Institutions Division to effect the Conversion (the
"Applications"), Chapters 54C and 105 of the North Carolina General Statutes,
and applicable federal laws, rules and regulations, including the Internal
Revenue Code of 1986, as amended ("Code"). We have examined the Plan, Home
Mutual's existing Certificate of Incorporation and Bylaws, the Second Amended
Certificate of Incorporation for Home, the Bylaws for Home, the corporate
minutes approving the Conversion and related records of Home Mutual. We have
also examined the Holding Company's Articles of Incorporation, Bylaws, corporate
minutes approving the Conversion and related records. In addition, we have
examined certificates of officials of Home Mutual, Home and the Holding Company,
the Registration Statement of the Holding Company on Form S-1 which the Holding
Company intends to file with the Securities and Exchange Commission on or about
<PAGE>
Board of Directors
Home Savings of Albemarle, Inc., S.S.B.
May 22, 1996
Page 2
May 23, 1996 (the "Registration Statement"), containing a proposed Prospectus
(hereinafter referred to as the "Prospectus") and such other documents as we
have deemed necessary or appropriate for purposes of giving the opinions set
forth in this letter. We have assumed the authenticity of all documents
presented to us as originals, the conformity to the originals of all documents
presented to us as copies, and the genuineness of all signatures of individuals,
and we know of no reason such assumptions are unwarranted for purposes of the
opinions expressed herein. We have assumed that all statements made in the
above-described documents are accurate and complete, and will be accurate and
complete at all times from now through the consummation of the Conversion. We
have not independently verified any factual matter relating to the Conversion in
connection with the preparation of our opinions herein and, accordingly, such
opinions do not take into account any matters not set forth herein which might
have been disclosed by independent verification. We have further assumed that
the Conversion will be consummated pursuant to the terms of the Plan.
In issuing the opinions set forth below, we have also assumed the accuracy
of the following representations of Home Mutual:
1. The fair market value of the deposit accounts and the interest in the
Liquidation Account received by each Eligible Account Holder and
Supplemental Eligible Account Holder in Home pursuant to the Conversion
will, in each instance, be equal to the fair market value of the
deposit accounts and the proprietary interest of each such Eligible
Account Holder and Supplemental Eligible Account Holder in Home Mutual
surrendered in the Conversion. The aggregate fair market value of the
deposit accounts and interests in the Liquidation Account held by
Eligible Account Holders as of the close of business on the Eligibility
Record Date will equal or exceed 99% of the aggregate fair market value
of all deposit accounts in Home Mutual (including accounts of less than
$50) as of the close of business on that date. The aggregate fair
market value of the deposit accounts and interests in the Liquidation
Account held by Supplemental Eligible Account Holders, officers and
directors of Home Mutual and their associates as of the close of
business on the Supplemental Eligibility Record Date will equal or
exceed 99% of the aggregate fair market value of all deposit accounts
in Home Mutual (including accounts of less than $50) as of the close of
business on that date.
2. The Subscription Rights to purchase Conversion Stock received in the
Conversion by each recipient have no fair market value. This assumption
is based upon your representation and the opinion of Ferguson & Co.,
LLP that such Subscription Rights have no fair market value because
they will be acquired by recipients without cost, are nontransferable
and afford the recipients the right only to purchase Conversion Stock
at a price equal to its estimated fair market value as of the date such
rights are issued, which will be the same price paid by all purchasers
in the Conversion.
<PAGE>
Board of Directors
Home Savings of Albemarle, Inc., S.S.B.
May 22, 1996
Page 3
3. Immediately following the Conversion, the Eligible Account Holders and
Supplemental Eligible Account Holders will own all of the outstanding
interests in the Liquidation Account and will own such interests solely
by reason of their ownership of deposits and proprietary interests in
Home Mutual on the Eligibility Record Date and Supplemental Eligibility
Record Date, respectively. Pursuant to the Plan, no additional
interests in the Liquidation Account shall be issued following the
Conversion.
4. Immediately following the consummation of the Conversion, Home will
possess the same assets and liabilities as Home Mutual held immediately
before the Conversion, plus proceeds from the sale of Conversion Stock
less proceeds retained by the Holding Company, less assets used to pay
expenses incurred in the Conversion. Assets of Home Mutual used to pay
expenses of the Conversion and all distributions (except for regular,
normal interest payments made by Home Mutual immediately before the
Conversion) in the aggregate will constitute less than 1% of the net
assets of Home Mutual.
5. Except for Home Mutual's agreement to sell all of Home's issued and
outstanding common stock to the Holding Company in the Conversion, at
the time of the Conversion, Home Mutual will not have outstanding any
warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in Home Mutual.
6. Home has no plan or intention to reacquire any of its common stock
issued to the Holding Company in the Conversion. Home has no plan or
intention to issue additional shares of its common stock following the
Conversion. The common stock of Home issued to the Holding Company in
the Conversion will not be callable or subject to a put option.
7. Home has no plan or intention to sell or otherwise dispose of any of
the assets of Home Mutual acquired in the Conversion, except for
dispositions made in the ordinary course of business.
8. The liabilities of Home Mutual assumed by Home and the liabilities, if
any, to which the transferred assets are subject were incurred by Home
Mutual in the ordinary course of its business and are associated with
the assets transferred.
9. Following the Conversion, Home will continue the historic business of
Home Mutual, will use a significant portion of Home Mutual's historic
business assets in Home's business, and will continue to engage in the
same business in substantially the same manner as engaged in by Home
Mutual before the Conversion.
<PAGE>
Board of Directors
Home Savings of Albemarle, Inc., S.S.B.
May 22, 1996
Page 4
10. Home Mutual and Home (treated as one entity for purposes of this
representation) and the Holding Company will each pay their own
expenses attributable to the Conversion.
11. Home Mutual is not under the jurisdiction of a court as a debtor under
(i) Title 11 of the United States Code, or (ii) a receivership,
foreclosure, or similar proceeding in a federal or state court.
12. None of the compensation received by an employee of Home Mutual or
Home who is also an Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member will be separate consideration for, or
allocable to, his or her status as an Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member. None of the
interests in the Liquidation Account of Home received by an employee
of Home Mutual or Home who is an Eligible Account Holder or
Supplemental Eligible Account Holder will be separate consideration
for, or allocable to, any employment agreement or arrangement. All
compensation paid to Eligible Account Holders and Supplemental
Eligible Account Holders who are also employees of Home Mutual or Home
will be for services actually rendered and commensurate with amounts
paid to third parties bargaining at arm's-length for similar services.
Officers, directors and other employees may in the future be issued
restricted common stock of the Holding Company for future services
pursuant to the proposed Management Recognition Plan of the Holding
Company described in the Prospectus ("MRP").
13. No Eligible Account Holder or Supplemental Eligible Account Holder
will be excluded from participating in the Liquidation Account.
14. The Holding Company has no plan or intention to redeem or otherwise
acquire any of the Conversion Stock to be issued pursuant to the
Conversion, except as disclosed in the Prospectus regarding possible
purchases to fund the ESOP, MRP and stock option plans. The Holding
Company has no plan or intention to sell or otherwise dispose of the
common stock of Home received by it in the Conversion. The Conversion
Stock issued in the Conversion will not be callable or subject to a
put option.
15. At the time of Conversion, the fair market value of the assets of Home
Mutual on a going concern basis will equal or exceed the amount of its
liabilities plus the amount of liabilities to which its assets are
subject. Immediately before the Conversion, Home Mutual will have a
positive net worth.
16. No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders or any other grantee of
Subscription Rights in lieu of (i) Subscription Rights for Conversion
Stock, or (ii) an interest in the Liquidation Account of Home.
<PAGE>
Board of Directors
Home Savings of Albemarle, Inc., S.S.B.
May 22, 1996
Page 5
17. There is no plan or intention for Home to be liquidated or merged with
another corporation following the Conversion.
18. The Conversion described herein is motivated by valid business
purposes and not by tax avoidance purposes.
19. After the Conversion, Home will continue the corporate existence and
business of Home Mutual with only the following changes:
(i) An amended and restated Certificate of Incorporation to allow
for the issuance of capital stock of Home, and
(ii) New corporate Bylaws.
20. There exists no intercorporate indebtedness between Home Mutual and
Home (treated as one entity for purposes of this representation) and
the Holding Company that was issued, acquired, or will be settled at a
discount.
21. In the Conversion, the Holding Company will acquire 100% of the issued
and outstanding common stock of Home.
22. Neither Home Mutual and Home (treated as one entity for purposes of
this representation) nor the Holding Company is an "investment
company," as defined in Section 368(a)(2)(F)(iii) and (iv) of the
Code.
Based upon the foregoing, our opinions with respect to the federal and
North Carolina income tax consequences of the Conversion are as follows (for
purposes of the opinions set forth below, Eligible Account Holders shall
include, if applicable pursuant to the Plan, Supplemental Eligible Account
Holders):
1. The Conversion of Home Mutual from a North Carolina-chartered mutual
savings bank to a North Carolina-chartered stock savings bank will
qualify as a reorganization within the meaning of Section 368(a) of the
Code, and neither Home Mutual nor Home will recognize any gain or loss
as a result of such reorganization. Revenue Ruling 80-105, 1980-1 C.B.
78. Home Mutual in its form as a North Carolina-chartered mutual
savings bank and Home in its form as a North Carolina-chartered stock
savings bank will each be a "party to a reorganization" within the
meaning of Section 368(b) of the Code.
2. Home's basis in each of Home Mutual's assets will be the same basis as
Home Mutual immediately prior to the Conversion. Section 362(b) of the
Code.
<PAGE>
Board of Directors
Home Savings of Albemarle, Inc., S.S.B.
May 22, 1996
Page 6
3. No gain or loss will be recognized by the Holding Company upon receipt
of money in exchange for the shares of the Conversion Stock issued
pursuant to the exercise of the Subscription Rights issued therefor.
Section 1032(a) of the Code.
4. No gain or loss will be recognized by Home upon receipt of money from
the Holding Company in exchange for the shares of its common stock to
be issued to the Holding Company in the Conversion. Section 1032(a) of
the Code.
5. The holding period of the Home assets after the Conversion will include
the period during which the assets were held by Home Mutual prior to
the Conversion. Section 1223(2) of the Code.
6. Gain or loss, if any, will be realized by an Eligible Account Holder on
the exchange of such person's deposit account and proprietary interest
in Home Mutual for (i) a withdrawable deposit account in Home in the
same dollar amount as such person's deposit account in Home Mutual
immediately prior to the Conversion, (ii) such person's interest in the
Liquidation Account of Home, and (iii) Subscription Rights to purchase
the Conversion Stock. Such gain, if any, will be recognized by an
Eligible Account Holder only to the extent of the fair market value of
such person's interest in the Subscription Rights received. Section
1001 of the Code. You have represented to us that the Subscription
Rights to purchase Conversion Stock have no fair market value.
Accordingly, gain recognized by an Eligible Account Holder as a result
of the Conversion is limited to an amount not in excess of the fair
market value of such person's interest in the Subscription Rights
received in the Conversion. Paulsen v. Commissioner, 469 U.S. 131, 139
-----------------------
(1985), quoting Society for Savings v. Bowers, 349 U.S. 143, 150
-----------------------------
(1955).
7. The basis of the deposit account in Home received by an Eligible
Account Holder will be the cost of such deposit account. The cost basis
of such deposit account in Home (i) will be equal to the fair market
value of such deposit account in Home and (ii) will be equal to such
person's basis in his or her deposit account in Home Mutual exchanged
therefor. Section 1012 of the Code.
8. The basis of the interest in the Liquidation Account received by an
Eligible Account Holder will be equal to the cost of such interest. The cost of
the Liquidation Account will be the fair market value of the proprietary
interest in Home Mutual given for the Liquidation Account. Section 1012 of the
Code. An interest in the Liquidation Account will be deemed to have no value,
or nominal, if any, fair market value. Paulsen v. Commissioner, 469 U.S. 131,
-----------------------
139 (1985) (quoting Society for Savings v. Bowers, 349 U.S. 143, 150 (1955)).
-----------------------------
<PAGE>
Board of Directors
Home Savings of Albemarle, Inc., S.S.B.
May 22, 1996
Page 7
9. The basis of Subscription Rights received by an Eligible Account Holder
will be zero, increased by the gain, if any, recognized on their
receipt. Section 1012 of the Code. Gain is recognized only to the
extent of the fair market value of the Subscription Rights. You have
represented to us that the Subscription Rights to purchase Conversion
Stock have no fair market value. Accordingly, the basis of the
Subscription Rights received by an Eligible Account Holder will be
zero.
10. The basis of the Conversion Stock purchased pursuant to the exercise of
Subscription Rights will be the purchase price thereof. Section 1012 of
the Code.
11. The holding period of the Conversion Stock acquired through the
exercise of Subscription Rights will commence upon the date of such
exercise. Section 1223(6) of the Code.
12. For purposes of Section 381 of the Code, Home will be treated just as
Home Mutual would have been treated had there been no reorganization of
Home Mutual from a North Carolina-chartered mutual savings bank to a
North Carolina-chartered stock savings bank. Accordingly, and with
regard only to the reorganization of Home Mutual into Home, the tax
attributes of Home Mutual enumerated in Section 381(c) of the Code
shall be taken into account by Home as if there had been no
reorganization. Treasury Regulation (S)1.381(b)(1)(a)(2).
13. For North Carolina income tax purposes, the Conversion will be treated
in a manner identical to the way the Conversion is treated pursuant to
the Code. Sections 105-130.3, 105-130.5, 105-134.5, and 105-134.6 of
the North Carolina General Statutes.
No opinion is expressed with regard to the following:
1. The tax treatment of any aspect of the Conversion that is not
specifically set forth and addressed in the foregoing opinions.
2. The status, including without limitation, the tax treatment, of Home
Mutual's and Home's bad debt reserves before or after the Conversion.
3. For purposes of Section 381 of the Code, the effect upon Home Mutual
and Home of the acquisition of all of the common stock of Home by the
Holding Company in the Conversion.
<PAGE>
Board of Directors
Home Savings of Albemarle, Inc., S.S.B.
May 22, 1996
Page 8
The opinions herein expressed represent only our best judgments with
respect to the interpretation of published material and is not binding upon the
Internal Revenue Service or the courts. Our opinions are limited to matters of
North Carolina and federal law.
The opinions contained herein are rendered solely for your benefit and for
the benefit of purchasers of Conversion Stock and may not be used or relied upon
by, published or communicated to any other party for any purpose whatsoever
without prior written consent in each instance. We hereby consent to the
inclusion of this letter as an exhibit to the Applications being filed by Home
Mutual with the Administrator and as an exhibit to the Registration Statement.
Sincerely,
BROOKS, PIERCE, McLENDON
HUMPHREY & LEONARD, L.L.P.
By: /s/ Howard L. Williams
---------------------------------
Howard L. Williams
<PAGE>
Exhibit 8(b)
[LETTERHEAD OF FERGUSON & CO., LLP APPEARS HERE]
May 22, 1996
Board of Directors
Home Saving Bank of Albemarle, S.S.B.
155 West South Street
Albemarle, North Carolina 28002
Plan of Conversion, Subscription Rights
---------------------------------------
Directors:
Terms used in this letter not otherwise defined herein have the same meanings
for such terms in the Plan of Holding Company Conversion (the "Plan of
Conversion") adopted by the Board of Directors of Home Savings Bank of
Albemarle, S.S.B., Albemarle, North Carolina ("Home Savings" or "Bank"), under
which the Bank will convert from a mutual savings bank to a stock savings bank
and issue all of the Bank's stock to South Street Financial Corp.. (the "Holding
Company"). Simultaneously, the Holding Company will issue shares of common
stock (the "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 Bank's tax qualified employee
stock ownership plan, (3) Supplemental Eligible Account Holders, (4) Other
Members, and (5) employees, officers and directors of Home Savings. Based
solely upon our observation that the subscription rights will be available to
such parties without cost, will be legally non-transferable and of short
duration, and will afford such parties the right only to purchase shares of
Common Stock at the same price to be paid by members of the general public in
the Community Offering, but without undertaking any independent investigation of
state or federal laws or the position of the Internal Revenue Service with
respect to such issue, we are of the belief that:
(1) the subscription rights will have no ascertainable market value; and
(2) the price at which the subscription rights are exercisable will not be
more or less than the pro forma market value of the shares upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates and other external forces (e.g.,
natural disasters or significant global events) occur from time to time and may
materially affect the value of thrift stocks as a whole or the Holding Company's
value. Accordingly, no assurance can be given that persons who subscribe to
shares of Common Stock in the Conversion will thereafter be able to sell such
shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ Charles M. Hebert
Charles M. Hebert
Principal
<PAGE>
Exhibit 10(a)
[LETTERHEAD OF FERGUSON & CO., LLP APPEARS HERE]
February 29, 1996
Board of Directors
Home Savings Bank
155 West South
Albemarle, North Carolina 28002
Dear Directors:
This letter sets forth the agreement between Home Savings Bank ("Home" or
"Bank"), Albemarle, North Carolina, and Ferguson & Co., LLP, ("F&C"), Irving,
Texas, under the terms of which Home has engaged F&C, in connection with its
possible conversion from mutual to stock form, to (1) determine the pro forma
market value of the shares of common stock to be issued and sold by Home or its
holding company; and (2) assist Home in preparing a business plan to be filed
with the application for approval to convert to stock.
F&C agrees to deliver the written valuation and business plan to Home at
the above address on or before a mutually agreed upon date and to meet and
consult with the Board of Directors of Home with regard to both the written
valuation and the business plan. Further, F&C agrees to perform such other
services as are necessary or required in connection with comments from the
applicable regulatory authorities relating to the business plan and appraisal
and the preparation of appraisal updates as requested by Home or its counsel.
It is understood that the services of F&C under this agreement shall be limited
as herein described.
F&C's fee for the business plan and initial appraisal valuation report and
any required updates shall be $32,000 ($10,000 for the business plan and $22,000
for the appraisal). In addition, Home shall reimburse F&C for all reasonable
out-of-pocket expenses. Payment under this agreement shall be made as follows:
1. Seven thousand, five hundred dollars ($7,500) upon execution of this
engagement letter.
2. Nineteen thousand, five hundred dollars ($19,500) upon delivery of the
completed appraisal report and business plan and consultation with the
Board of Directors regarding same.
<PAGE>
Board of Directors
February 29, 1996
Page 2
3. Two thousand, five hundred dollars ($2,500) upon approval of the
appraisal by the FDIC.
4. Two thousand, five hundred dollars ($2,500) upon completion of the
conversion.
5. Reasonable out-of-pocket expenses are to be paid monthly, based upon
itemized statements.
If, during the course of this engagement, unforeseen events occur so as to
change materially the nature or the work content of the services described in
this contract, the terms of the contract shall be subject to renegotiation.
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 Home's management or
operating policies, execution of a merger agreement with another institution
prior to completion of conversion, and excessive delays or suspension of
processing of conversions by the regulatory authorities such that completion of
Home's conversion requires the preparation by F&C of a new appraisal report or
business plan, excluding appraisal updates during the course of the engagement.
F&C understands that Home's board of Directors has not adopted a plan of
conversion as of the date hereof. Accordingly, the board of directors has not
decided at this point whether a conversion will occur and information about the
possibility of a conversion is strictly confidential. Home may terminate this
engagement at any time upon written notice to F&C. In such event, F&C shall be
entitled to receive the reasonable value of its services rendered to the date of
such termination.
To induce F&C to provide the services described above, Home hereby agrees
as follows:
1. Home shall supply to F&C such information with respect to its business
and financial condition as F&C reasonably may request in order to make
the aforesaid valuation. Such information made available to F&C shall
include, but not be limited to, annual financial statements, periodic
regulatory filings, material agreements, debt instruments and corporate
books and records.
2. Home hereby represents and warrants, to the best of its knowledge, that
any information provided to F&C does not and will not, at any time
relevant hereto,
<PAGE>
Board of Directors
February 29, 1996
Page 3
contain any misstatement or untrue statement of a material fact or omit
any and all material facts required to be stated therein or necessary to
make the statements therein not false or misleading in light of the
circumstances under which they were made.
3. Home shall indemnify and hold harmless F&C and any employees of F&C who
act for or on behalf of F&C in connection with the services called for
under this agreement, from and against any and all loss, cost, damage,
claim, liability or expense of any kind, including reasonable attorneys
fees and other expenses incurred in investigating, preparing to defend
and defending any claim or claims (specifically including, but not
limited to, claims under federal and state securities laws) arising out
of any misstatement or untrue statement of a material fact contained in
the information supplied by Home to F&C or by an omission to state a
material fact in the information so provided which is required to be
stated therein in order to make the statement therein not false or
misleading.
4. F&C shall not be entitled to indemnification pursuant to Paragraph 3
above with regard to any claim arising where, with regard to the basis
for such claim, F&C had knowledge that a statement of a fact material to
the evaluation and contained in the information supplied by Home was
untrue or had knowledge that a material fact was omitted from the
information so provided and that such material fact was necessary in
order to make the statement made to F&C not false or misleading.
5. F&C additionally shall not be entitled to indemnification pursuant to
Paragraph 3 above notwithstanding its lack of actual knowledge of an
intentional misstatement or omission of a material fact in the
information provided if F&C is determined to have been negligent or to
have failed to exercise due diligence in the preparation of its
valuation.
Home and F&C are not affiliated, and neither Home nor F&C has an economic
interest in, or held in common with, the other and has not derived a significant
portion of its gross revenue, receipts or net income for any period from
transactions with the other.
<PAGE>
Board of Directors
February 29, 1996
Page 4
In order for F&C to consider this proposal binding, please acknowledge your
consent to the foregoing by executing the enclosed copies of this letter and
returning one copy to us, together with a check payable to Ferguson & Co. in the
amount of $7,500. The third copy is for your conversion legal counsel.
Yours very truly,
/s/ Charles M. Hebert
Charles M. Hebert
Principal
Agreed to ($7,500 check enclosed):
Home Savings Bank
Albemarle, North Carolina
By: _____________________________
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, INC., SSB
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of , 1996, by and between
------------------
HOME SAVINGS BANK OF ALBEMARLE, INC., SSB (hereinafter referred to as the
"Savings Bank") and CARL M. HILL (hereinafter referred to as the "Officer") and
is joined in by SOUTH STREET FINANCIAL CORP., the parent holding company of the
Savings Bank (hereinafter referred to as the "Holding Company").
WHEREAS, the Officer has heretofore been employed by the Savings Bank as
its President; and
WHEREAS, the Savings Bank is a state-chartered stock savings bank and the
wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Savings Bank desires to retain the services of the Officer as
the President of the Savings Bank upon the terms and conditions set forth
herein; and
WHEREAS, the services of the Officer, his experience and knowledge of the
affairs of the Savings Bank, and his reputation and contacts in the industry and
the local community are extremely valuable to the Savings Bank; and
WHEREAS, the Savings Bank wishes to attract and retain such well-qualified
executives and it is in the best interest of the Savings Bank and of the Officer
to secure the continued services of the Officer notwithstanding any change in
control of the Savings Bank or the Holding Company; and
WHEREAS, the Savings Bank considers the establishment and maintenance of a
sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Holding
Company, the Savings Bank and their stockholders; and
WHEREAS, the parties desire to enter into this Agreement in order to set
forth the terms and conditions of the Officer's employment relationship with the
Savings Bank.
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
1. Employment. The Savings Bank hereby agrees to employ the Officer and
----------
the Officer hereby agrees to accept employment, upon the terms and conditions
stated herein, as the President of the Savings Bank. The Officer shall render
such administrative and management services to the Savings Bank as are
customarily performed by persons situated in a similar executive capacity. The
Officer shall promote the business of the Savings Bank and perform such other
duties as shall, from time to time, be reasonably prescribed by the Board of
Directors of the Savings Bank (the "Board").
2. Compensation. The Savings Bank shall pay the Officer during the term
------------
of this Agreement, as compensation for all service rendered by him to the
Savings Bank, a base salary at the rate of $157,320 per annum, payable in cash
not less frequently than monthly; provided that the rate of such salary shall be
reviewed by the Board not less often than annually. Such rate of salary, or
increased rate of salary, as the case may be, may be further increased, but not
decreased, from time to time in such amounts as the Board, in its discretion,
may decide. In determining salary increases, the Board shall compensate the
Officer for increases in the cost of living and may also provide for performance
or merit increases. Participation in incentive compensation, deferred
compensation, discretionary bonus, profit-sharing, retirement, stock option and
other employee benefit plans that the Savings Bank or the Holding Company have
adopted or may from time to time adopt, and participation in any fringe
benefits, shall not reduce the salary payable to the Officer under this Section.
The Officer will be entitled to such customary fringe benefits, vacation and
sick leave as are consistent with the normal practices and established policies
of the Savings Bank. In the event of a Change of Control (as defined in Section
10),
2
<PAGE>
the Officer's rate of salary shall be increased not less than six percent (6%)
annually during the term of this Agreement.
3. Discretionary Bonuses. During the term of this Agreement, the Officer
---------------------
shall be entitled in an equitable manner with all other key management personnel
of the Savings Bank, to such discretionary bonuses as may be authorized,
declared and paid by the Directors to the Savings Bank's key management
employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Officer's right to such discretionary bonuses when and as
declared by the Directors.
4. Participation in Retirement and Employee Benefit Plans; Fringe
--------------------------------------------------------------
Benefits. The Officer shall be entitled to participate in any plan relating to
- --------
deferred compensation, stock awards, stock options, stock purchases, pension,
thrift, profit sharing, group life insurance, medical and dental coverage,
disability coverage, education, or other retirement or employee benefits that
the Savings Bank or the Holding Company have adopted, or may, from time to time
adopt, for benefit of their executive employees and for employees generally,
subject to the eligibility rules of such plans.
The Officer shall also be entitled to participate in any other fringe
benefits which are now or may be or become applicable to the Officer or the
Savings Bank's other executive employees, including the payment of reasonable
expenses for attending annual and periodic meetings of trade associations, and
any other benefits which are commensurate with the duties and responsibilities
to be performed by the Officer under this Agreement. Additionally, the Officer
shall be entitled to such vacation and sick leave as shall be established under
uniform employee policies promulgated by the Directors. The Savings Bank shall
reimburse the Officer for all out-of-pocket reasonable and necessary business
expenses which the Officer may incur in connection with his services on behalf
of the Savings Bank.
3
<PAGE>
The Savings Bank also agrees to provide the Officer with one automobile of
an appropriate class and quality owned or leased by the Savings Bank for use in
connection with the Officer's duties hereunder.
5. Term. The initial term of employment under this Agreement shall be for
----
the period commencing upon the effective date of this Agreement and ending three
(3) calendar years from the effective date of this Agreement. On each
anniversary of the effective date of this Agreement of the Savings Bank, the
term of this Agreement shall automatically be extended for an additional one
year period beyond the then effective expiration date unless written notice from
the Savings Bank or the Officer is received 90 days prior to an anniversary date
advising the other party that this Agreement shall not be further extended;
provided that the Directors shall review the Officer's performance annually and
make a specific determination pursuant to such review to renew this Agreement
prior to the 90 day notice period. In the event of a Change in Control, the
term of employment under this Agreement shall automatically be extended for a
period of three (3) years beginning on the date of the Change in Control.
6. Loyalty. The Officer shall devote his full efforts and entire business
-------
time to the performance of his duties and responsibilities under this Agreement.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective businesses
of the Holding Company, the Savings Bank or of their subsidiaries, if any,
received by him during the term of this Agreement and will not disclose or make
use of such information, except in the ordinary course of his duties under this
Agreement, without the prior written consent of the Holding Company or the
Savings Bank.
7. Standards. The Officer shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations and as may be
established from time to time by the Board. The
4
<PAGE>
Savings Bank will provide the Officer with the working facilities and staff
customary for similar executives and necessary for him to perform his duties.
8. Termination and Termination Pay.
-------------------------------
(a) The Officer's employment under this Agreement shall be terminated upon
the death of the Officer during the term of this Agreement, in which event, the
Officer's estate shall be entitled to receive the compensation due the Officer
through the last day of the calendar month in which his death shall have
occurred and for a period of one month thereafter.
(b) The Officer's employment under this Agreement may be terminated at any
time by the Officer upon sixty (60) days' written notice to the Board of
Directors. Upon such termination, the Officer shall be entitled to receive
compensation through the effective date of such termination.
(c) In the event the Officer becomes disabled during the term of his
employment under this Agreement and it is determined by the Savings Bank that
the Officer is permanently unable to perform his duties hereunder, the Savings
Bank shall continue to compensate the Officer at the level of compensation
described in Paragraph 2 above, and shall continue to provide the Officer each
of the other benefits set forth or described in this Agreement, for the
remaining term of this Agreement, less any other payments provided under any
disability income plan of the Savings Bank which is applicable to the Officer.
In the event of any disagreement between the Officer and the Savings Bank as to
whether the Officer is physically or mentally incapacitated such as will result
in the termination of the Officer's employment pursuant to this Paragraph 8(c),
the question of such incapacity shall be submitted to an impartial and reputable
physician for determination, selected by mutual agreement of the Officer and the
Savings Bank or, failing such agreement, by two (2) physicians (one (1) of whom
shall be selected by the Savings Bank and the other by the Officer), and such
determination of the question of such incapacity by such physician or physicians
shall be final and binding on the Officer and the Savings
5
<PAGE>
Bank. The Savings Bank shall pay the reasonable fees and expenses of such
physician or physicians in making any determination required under this
Paragraph 8(c).
(d) The Board may terminate the Officer's employment at any time, but any
termination by the Board, other than termination for cause, shall not prejudice
the Officer's right to compensation or other benefits under this Agreement for
the remaining period which would have been covered by this Agreement if such
termination had not occurred. The Officer shall have no right to receive
compensation or other benefits for any period after termination for "cause."
Termination for "cause" shall include termination because of the Officer's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provisions
of this Agreement.
9. Additional Regulatory Requirements.
----------------------------------
(a) If the Officer 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 Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Savings
Bank shall (i) pay the Officer all of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations which were suspended.
(b) If the Officer 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) of Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this
6
<PAGE>
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(c) 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 under
this Agreement shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank, (i) by the Federal Deposit Insurance
Corporation (the "FDIC"), at the time the 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 Deposit Insurance Act (12 U.S.C. (S)
1818(c)); or (ii) by the Administrator of the Savings Institutions Division of
the North Carolina Department of Commerce (the "Administrator"), at the time the
Administrator approves a supervisory merger to resolve problems related to
operation of the Savings Bank or when the Savings Bank is determined by the
Administrator 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. Change in Control.
-----------------
(a) In the event of a "Change in Control" (as defined in Subsection (b)
below), the acquiror shall be bound by the terms of this Agreement for a period
of three years beginning on the date of the "Change in Control" (as provided in
Section 5) and shall be prohibited, during the remainder of such term, from:
(i) Assigning Officer any duties and/or responsibilities that are
inconsistent with his position, duties, responsibilities or status at
the time of the Change in Control or with his reporting
responsibilities or equivalent titles with the Savings Bank in effect
at such time; or
7
<PAGE>
(ii) Adjusting Officer's annual base salary rate other than in
accordance with the provisions of Section 2 of this Agreement; or
(iii) Reducing in level, scope or coverage or eliminating Officer's
life insurance, medical or hospitalization insurance, disability
insurance, profit sharing plans, stock option plans, stock purchase
plans, deferred compensation plans, management retention plans,
retirement plans, stock ownership plans, or similar plans or benefits
being provided by the Savings Bank or the Holding Company to the
Officer as of the effective date of the Change in Control; or
(iv) Transferring Officer to a location outside of Davie County,
North Carolina, without the Officer's express written consent.
(b) For the purposes of this Agreement, the term "Change in Control" shall
mean any of the following events:
(i) a change in control of a nature that would be required to be
reported in response to Item 1 of the Current Report on Form 8-K, as
in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Exchange Act; or
(ii) such time as any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of the
outstanding Common Stock of the Holding Company or Common Stock of the
Savings Bank, as applicable; or
(iii) individuals who constitute the Board or board of directors of
the Holding Company on the date hereof (the "Incumbent Board" and
"Incumbent Holding Company Board," respectively) cease for any reason
to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or Incumbent Holding Company Board, as
applicable, or whose nomination for election by the Savings Bank's or
Holding Company's shareholders was approved by the Savings Bank's or
Holding Company's Board of Directors or Nominating Committee, as
applicable, shall be considered as though he or she were a member of
the Incumbent Board or Incumbent Holding Company Board, as applicable;
or
8
<PAGE>
(iv) either the Holding Company or the Savings Bank consolidates or
merges with or into another corporation, association or entity or is
otherwise reorganized, where neither the Holding Company nor the
Savings Bank, respectively, is the surviving corporation in such
transaction; or
(v) all or substantially all of the assets of either the Holding
Company or the Savings Bank are sold or otherwise transferred to or
are acquired by any other entity or group.
Notwithstanding the other provisions of this Section 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Officer and Savings Bank agree in
writing that the same shall not be treated as a Change in Control for purposes
of this Agreement.
(c) In the event any dispute shall arise between the Officer and the
Savings Bank as to the terms or interpretation of this Agreement, including this
Section 10, whether instituted by formal legal proceedings or otherwise,
including any action taken by the Officer to enforce the terms of this Section
10 or in defending against any action taken by the Savings Bank, the Savings
Bank shall reimburse the Officer for all costs and expenses incurred in such
proceedings or actions, including attorney's fees, in the event the Officer
prevails in any such action.
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Savings Bank which shall acquire, directly
or indirectly, by conversion, merger, consolidation, purchase or otherwise, all
or substantially all of the assets of the Holding Company or the Savings Bank.
(b) Since the Savings Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Savings Bank.
9
<PAGE>
12. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing, signed by the Officer and on behalf of the Savings Bank
by such officer as may be specifically designated by the Directors. No waiver
by either party hereto, at any time, of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties, except as herein otherwise provided.
13. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
14. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
HOME SAVINGS BANK OF ALBEMARLE,
INC., SSB
By:
------------------------------
Chairman of the Board
-------------------------(SEAL)
Carl M. Hill
10
<PAGE>
The foregoing Agreement is consented and agreed to by South Street
Financial Corp., the parent holding company of Home Savings Bank of Albemarle,
Inc., SSB.
SOUTH STREET FINANCIAL CORP.
By:
------------------------------
Chairman of the Board
11
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, INC., SSB
EMPLOYMENT AGREEMENT
THIS AGREEMENT entered into as of , 1996, by and between
------------------
HOME SAVINGS BANK OF ALBEMARLE, INC., SSB (hereinafter referred to as the
"Savings Bank") and R. RONALD SWANNER (hereinafter referred to as the "Officer")
and is joined in by SOUTH STREET FINANCIAL CORP., the parent holding company of
the Savings Bank (hereinafter referred to as the "Holding Company").
WHEREAS, the Officer has heretofore been employed by the Savings Bank as
its President; and
WHEREAS, the Savings Bank is a state-chartered stock savings bank and the
wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Savings Bank desires to retain the services of the Officer as
the President of the Savings Bank upon the terms and conditions set forth
herein; and
WHEREAS, the services of the Officer, his experience and knowledge of the
affairs of the Savings Bank, and his reputation and contacts in the industry and
the local community are extremely valuable to the Savings Bank; and
WHEREAS, the Savings Bank wishes to attract and retain such well-qualified
executives and it is in the best interest of the Savings Bank and of the Officer
to secure the continued services of the Officer notwithstanding any change in
control of the Savings Bank or the Holding Company; and
WHEREAS, the Savings Bank considers the establishment and maintenance of a
sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of the Holding
Company, the Savings Bank and their stockholders; and
WHEREAS, the parties desire to enter into this Agreement in order to set
forth the terms and conditions of the Officer's employment relationship with the
Savings Bank.
<PAGE>
NOW, THEREFORE, for and in consideration of the premises and mutual
promises, covenants and conditions hereinafter set forth and other good and
valuable considerations, the receipt and sufficiency of which hereby are
acknowledged, the parties hereby do agree as follows:
1. Employment. The Savings Bank hereby agrees to employ the Officer and
----------
the Officer hereby agrees to accept employment, upon the terms and conditions
stated herein, as the President of the Savings Bank. The Officer shall render
such administrative and management services to the Savings Bank as are
customarily performed by persons situated in a similar executive capacity. The
Officer shall promote the business of the Savings Bank and perform such other
duties as shall, from time to time, be reasonably prescribed by the Board of
Directors of the Savings Bank (the "Board").
2. Compensation. The Savings Bank shall pay the Officer during the term
------------
of this Agreement, as compensation for all service rendered by him to the
Savings Bank, a base salary at the rate of $101,160 per annum, payable in cash
not less frequently than monthly; provided that the rate of such salary shall be
reviewed by the Board not less often than annually. Such rate of salary, or
increased rate of salary, as the case may be, may be further increased, but not
decreased, from time to time in such amounts as the Board, in its discretion,
may decide. In determining salary increases, the Board shall compensate the
Officer for increases in the cost of living and may also provide for performance
or merit increases. Participation in incentive compensation, deferred
compensation, discretionary bonus, profit-sharing, retirement, stock option and
other employee benefit plans that the Savings Bank or the Holding Company have
adopted or may from time to time adopt, and participation in any fringe
benefits, shall not reduce the salary payable to the Officer under this Section.
The Officer will be entitled to such customary fringe benefits, vacation and
sick leave as are consistent with the normal practices and established policies
of the Savings Bank. In the event of a Change of Control (as defined in Section
10) ,
2
<PAGE>
the Officer's rate of salary shall be increased not less than six percent (6%)
annually during the term of this Agreement.
3. Discretionary Bonuses. During the term of this Agreement, the Officer
---------------------
shall be entitled in an equitable manner with all other key management personnel
of the Savings Bank, to such discretionary bonuses as may be authorized,
declared and paid by the Directors to the Savings Bank's key management
employees. No other compensation provided for in this Agreement shall be deemed
a substitute for the Officer's right to such discretionary bonuses when and as
declared by the Directors.
4. Participation in Retirement and Employee Benefit Plans; Fringe
--------------------------------------------------------------
Benefits. The Officer shall be entitled to participate in any plan relating to
- --------
deferred compensation, stock awards, stock options, stock purchases, pension,
thrift, profit sharing, group life insurance, medical and dental coverage,
disability coverage, education, or other retirement or employee benefits that
the Savings Bank or the Holding Company have adopted, or may, from time to time
adopt, for benefit of their executive employees and for employees generally,
subject to the eligibility rules of such plans.
The Officer shall also be entitled to participate in any other fringe
benefits which are now or may be or become applicable to the Officer or the
Savings Bank's other executive employees, including the payment of reasonable
expenses for attending annual and periodic meetings of trade associations, and
any other benefits which are commensurate with the duties and responsibilities
to be performed by the Officer under this Agreement. Additionally, the Officer
shall be entitled to such vacation and sick leave as shall be established under
uniform employee policies promulgated by the Directors. The Savings Bank shall
reimburse the Officer for all out-of-pocket reasonable and necessary business
expenses which the Officer may incur in connection with his services on behalf
of the Savings Bank.
3
<PAGE>
The Savings Bank also agrees to provide the Officer with one automobile of
an appropriate class and quality owned or leased by the Savings Bank for use in
connection with the Officer's duties hereunder.
5. Term. The initial term of employment under this Agreement shall be for
----
the period commencing upon the effective date of this Agreement and ending three
(3) calendar years from the effective date of this Agreement. On each
anniversary of the effective date of this Agreement of the Savings Bank, the
term of this Agreement shall automatically be extended for an additional one
year period beyond the then effective expiration date unless written notice from
the Savings Bank or the Officer is received 90 days prior to an anniversary date
advising the other party that this Agreement shall not be further extended;
provided that the Directors shall review the Officer's performance annually and
make a specific determination pursuant to such review to renew this Agreement
prior to the 90 day notice period. In the event of a Change in Control, the
term of employment under this Agreement shall automatically be extended for a
period of three (3) years beginning on the date of the Change in Control.
6. Loyalty. The Officer shall devote his full efforts and entire business
-------
time to the performance of his duties and responsibilities under this Agreement.
The Officer agrees that he will hold in confidence all knowledge or
information of a confidential nature with respect to the respective businesses
of the Holding Company, the Savings Bank or of their subsidiaries, if any,
received by him during the term of this Agreement and will not disclose or make
use of such information, except in the ordinary course of his duties under this
Agreement, without the prior written consent of the Holding Company or the
Savings Bank.
7. Standards. The Officer shall perform his duties and responsibilities
---------
under this Agreement in accordance with such reasonable standards expected of
employees with comparable positions in comparable organizations and as may be
established from time to time by the Board. The
4
<PAGE>
Savings Bank will provide the Officer with the working facilities and staff
customary for similar executives and necessary for him to perform his duties.
8. Termination and Termination Pay.
-------------------------------
(a) The Officer's employment under this Agreement shall be terminated upon
the death of the Officer during the term of this Agreement, in which event, the
Officer's estate shall be entitled to receive the compensation due the Officer
through the last day of the calendar month in which his death shall have
occurred and for a period of one month thereafter.
(b) The Officer's employment under this Agreement may be terminated at any
time by the Officer upon sixty (60) days' written notice to the Board of
Directors. Upon such termination, the Officer shall be entitled to receive
compensation through the effective date of such termination.
(c) In the event the Officer becomes disabled during the term of his
employment under this Agreement and it is determined by the Savings Bank that
the Officer is permanently unable to perform his duties hereunder, the Savings
Bank shall continue to compensate the Officer at the level of compensation
described in Paragraph 2 above, and shall continue to provide the Officer each
of the other benefits set forth or described in this Agreement, for the
remaining term of this Agreement, less any other payments provided under any
disability income plan of the Savings Bank which is applicable to the Officer.
In the event of any disagreement between the Officer and the Savings Bank as to
whether the Officer is physically or mentally incapacitated such as will result
in the termination of the Officer's employment pursuant to this Paragraph 8(c),
the question of such incapacity shall be submitted to an impartial and reputable
physician for determination, selected by mutual agreement of the Officer and the
Savings Bank or, failing such agreement, by two (2) physicians (one (1) of whom
shall be selected by the Savings Bank and the other by the Officer), and such
determination of the question of such incapacity by such physician or physicians
shall be final and binding on the Officer and the Savings
5
<PAGE>
Bank. The Savings Bank shall pay the reasonable fees and expenses of such
physician or physicians in making any determination required under this
Paragraph 8(c).
(d) The Board may terminate the Officer's employment at any time, but any
termination by the Board, other than termination for cause, shall not prejudice
the Officer's right to compensation or other benefits under this Agreement for
the remaining period which would have been covered by this Agreement if such
termination had not occurred. The Officer shall have no right to receive
compensation or other benefits for any period after termination for "cause."
Termination for "cause" shall include termination because of the Officer's
personal dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses) or final cease-and-desist order, or material breach of any provisions
of this Agreement.
9. Additional Regulatory Requirements.
----------------------------------
(a) If the Officer 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 Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(3) and (g)(1)), the Savings Bank's obligations under this
Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Savings
Bank shall (i) pay the Officer all of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations which were suspended.
(b) If the Officer 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) of Section 8(g)(1) of the Federal Deposit Insurance Act
(12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings Bank under
this
6
<PAGE>
Agreement shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(c) 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 under
this Agreement shall terminate as of the date of default, but this paragraph
shall not affect any vested rights of the contracting parties.
(d) All obligations under this Agreement shall be terminated, except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the Savings Bank, (i) by the Federal Deposit Insurance
Corporation (the "FDIC"), at the time the 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 Deposit Insurance Act (12 U.S.C. (S)
1818(c)); or (ii) by the Administrator of the Savings Institutions Division of
the North Carolina Department of Commerce (the "Administrator"), at the time the
Administrator approves a supervisory merger to resolve problems related to
operation of the Savings Bank or when the Savings Bank is determined by the
Administrator 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. Change in Control.
-----------------
(a) In the event of a "Change in Control" (as defined in Subsection (b)
below), the acquiror shall be bound by the terms of this Agreement for a period
of three years beginning on the date of the "Change in Control" (as provided in
Section 5) and shall be prohibited, during the remainder of such term, from:
(i) Assigning Officer any duties and/or responsibilities that are
inconsistent with his position, duties, responsibilities or status at
the time of the Change in Control or with his reporting
responsibilities or equivalent titles with the Savings Bank in effect
at such time; or
7
<PAGE>
(ii) Adjusting Officer's annual base salary rate other than in
accordance with the provisions of Section 2 of this Agreement; or
(iii) Reducing in level, scope or coverage or eliminating Officer's
life insurance, medical or hospitalization insurance, disability
insurance, profit sharing plans, stock option plans, stock purchase
plans, deferred compensation plans, management retention plans,
retirement plans, stock ownership plans, or similar plans or benefits
being provided by the Savings Bank or the Holding Company to the
Officer as of the effective date of the Change in Control; or
(iv) Transferring Officer to a location outside of Davie County,
North Carolina, without the Officer's express written consent.
(b) For the purposes of this Agreement, the term "Change in Control" shall
mean any of the following events:
(i) a change in control of a nature that would be required to be
reported in response to Item 1 of the Current Report on Form 8-K, as
in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Exchange Act; or
(ii) such time as any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Holding Company or Savings Bank
representing 25 percent or more of the combined voting power of the
outstanding Common Stock of the Holding Company or Common Stock of the
Savings Bank, as applicable; or
(iii) individuals who constitute the Board or board of directors of
the Holding Company on the date hereof (the "Incumbent Board" and
"Incumbent Holding Company Board," respectively) cease for any reason
to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or Incumbent Holding Company Board, as
applicable, or whose nomination for election by the Savings Bank's or
Holding Company's shareholders was approved by the Savings Bank's or
Holding Company's Board of Directors or Nominating Committee, as
applicable, shall be considered as though he or she were a member of
the Incumbent Board or Incumbent Holding Company Board, as applicable;
or
8
<PAGE>
(iv) either the Holding Company or the Savings Bank consolidates or
merges with or into another corporation, association or entity or is
otherwise reorganized, where neither the Holding Company nor the
Savings Bank, respectively, is the surviving corporation in such
transaction; or
(v) all or substantially all of the assets of either the Holding
Company or the Savings Bank are sold or otherwise transferred to or
are acquired by any other entity or group.
Notwithstanding the other provisions of this Section 10, a transaction or
event shall not be considered a Change in Control if, prior to the consummation
or occurrence of such transaction or event, Officer and Savings Bank agree in
writing that the same shall not be treated as a Change in Control for purposes
of this Agreement.
(c) In the event any dispute shall arise between the Officer and the
Savings Bank as to the terms or interpretation of this Agreement, including this
Section 10, whether instituted by formal legal proceedings or otherwise,
including any action taken by the Officer to enforce the terms of this Section
10 or in defending against any action taken by the Savings Bank, the Savings
Bank shall reimburse the Officer for all costs and expenses incurred in such
proceedings or actions, including attorney's fees, in the event the Officer
prevails in any such action.
11. Successors and Assigns.
----------------------
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Savings Bank which shall acquire, directly
or indirectly, by conversion, merger, consolidation, purchase or otherwise, all
or substantially all of the assets of the Holding Company or the Savings Bank.
(b) Since the Savings Bank is contracting for the unique and personal
skills of the Officer, the Officer shall be precluded from assigning or
delegating his rights or duties hereunder without first obtaining the written
consent of the Savings Bank.
9
<PAGE>
12. Modification; Waiver; Amendments. No provision of this Agreement may
--------------------------------
be modified, waived or discharged unless such waiver, modification or discharge
is agreed to in writing, signed by the Officer and on behalf of the Savings Bank
by such officer as may be specifically designated by the Directors. No waiver
by either party hereto, at any time, of any breach by the other party hereto of,
or compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No amendments or
additions to this Agreement shall be binding unless in writing and signed by
both parties, except as herein otherwise provided.
13. Applicable Law. This Agreement shall be governed in all respects
--------------
whether as to validity, construction, capacity, performance or otherwise, by the
laws of North Carolina, except to the extent that federal law shall be deemed to
apply.
14. Severability. The provisions of this Agreement shall be deemed
------------
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first hereinabove written.
HOME SAVINGS BANK OF ALBEMARLE,
INC., SSB
By:
-------------------------------
Chairman of the Board
-------------------------(SEAL)
R. Ronald Swanner
10
<PAGE>
The foregoing Agreement is consented and agreed to by South Street
Financial Corp., the parent holding company of Home Savings Bank of Albemarle,
Inc., SSB.
SOUTH STREET FINANCIAL CORP.
By:
-------------------------------
Chairman of the Board
11
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, INC.,
MANAGEMENT RECOGNITION PLAN
Home Savings Bank of Albemarle, Inc., S.S.B., a North Carolina chartered
savings bank (the "Bank"), does herein set forth the terms of the Management
Recognition Plan (the "Plan").
1. Purpose of this Plan. The purpose of this Plan is to provide to the
--------------------
directors, officers and employees (the "Participants") of the Bank and of any
corporation or other entity of which the Bank owns, directly or indirectly, not
less than fifty percent (50%) of any class of the equity securities thereof (a
"Subsidiary"), an ownership interest in the Bank's parent holding company, South
Street Financial Corp. (the "Corporation") by making awards (hereinafter
referred to as "Awards" or singularly, "Award") of shares of common stock of the
Corporation (the "Common Stock"). The Board of Directors of the Bank (the
"Board") and the Board of Directors of the Corporation believe that
participation in the ownership of the Corporation will induce Participants to
continue to serve the Bank or any Subsidiary as directors, officers and/or
employees and encourage them to contribute to the future growth and profits of
the Bank and the Corporation. In addition, the existence of this Plan will make
it possible for the Bank and its Subsidiaries to attract capable individuals to
serve as directors or officers of the Bank and its Subsidiaries. The Board
believes that the existence of this Plan will provide incentives to the
directors, officers and employees of the Bank and any Subsidiaries which will
contribute materially to the success of such companies.
2. Administration of this Plan.
---------------------------
(a) This Plan shall be administered by a committee of the Board (the
"Committee") which shall consist of not less than three non-employee members of
the Board who are "disinterested persons" as described in Rule 16b-3(c)(2)(i) of
the Rules and Regulations under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). In the absence of a duly appointed Committee, the Plan
shall be administered by those members of the Board who are "disinterested
persons," and by the Board if there are less than three "disinterested persons."
The Committee shall have full power and authority to construe, interpret and
administer this Plan. All actions, decisions, determinations, or
interpretations of the Committee shall be final, conclusive, and binding upon
all parties. Members of the Committee shall serve at the pleasure of the Board.
(b) The Committee shall decide (i) to whom Awards shall be made under
this Plan, except as provided in subparagraph 3(b) and paragraph 5 hereof, (ii)
the number of shares of Common Stock subject to each award except as provided in
subparagraph 3(b) and paragraph 5 hereof, (iii) the number of additional shares,
if any, to be purchased or allocated for the purposes of this Plan, (iv) the
determination of leaves of absence which may be granted to Participants without
constituting a termination of their employment for purposes of the Plan and (v)
such additional terms and conditions for Awards as the Committee shall deem
appropriate, including, without limitation, any determinations as to the
restrictions or conditions on transfer of shares of Common Stock that are
necessary or appropriate to satisfy all applicable securities laws, rules,
regulations, and listing requirements.
(c) The Committee may designate any officers or employees of the Bank
or of any Subsidiary to assist in the administration of this Plan. The Committee
may authorize such individuals
<PAGE>
to execute documents on its behalf and may delegate to them such other
ministerial and limited discretionary duties as the Committee may see fit.
(d) Any unallocated, undistributed or forfeited shares of Common
Stock held under this Plan shall be held by ,
------------------------
, and (the "Trustees") and any
- -------------------- --------------------
successor or successors who from time to time may be appointed by the Board.
3. Shares of Common Stock Available Under the Plan.
-----------------------------------------------
(a) The Plan shall acquire a number of shares of Common Stock of the
Corporation equal to four percent (4%) of the shares of Common Stock issued in
connection with the conversion of the Bank from a North Carolina chartered
mutual savings bank to a North Carolina chartered stock savings bank on
, 1996 (the "Conversion"). Such shares of Common Stock may be
- -------------
purchased by the Plan in the open market, or, subject to approval of the Board
of Directors of the Corporation, may be acquired through the issuance by the
Corporation to the Plan of authorized but unissued shares of Common Stock on
such terms as may be approved by the Committee and the Board of Directors of the
Corporation. Such shares (the "Plan Shares") shall be held or delivered by the
Trustees or shall be allocated and distributed pursuant to the terms of this
Plan.
(b) Upon the purchase of the Plan Shares as provided in subparagraph
(a) above, such Plan Shares shall be allocated as provided in paragraph 5
hereof.
4. Eligibility. The Participants in this Plan to whom Awards may be made
-----------
shall be the following: members of the Board, members of the Board of Directors
of any Subsidiary, and such officers and employees of the Bank and/or of any
Subsidiary as may be designated by the Board. Notwithstanding the foregoing, no
member of the Committee is eligible to receive any grants or any awards of
shares under this Plan during the one-year period prior to serving on the
Committee or during such service, except for Awards of Plan Shares which are
distributed pursuant to the provisions of paragraph 5 hereof.
5. Award of Plan Shares. Subject to the provisions of paragraph 7 hereof,
--------------------
effective on the date this Plan is approved by a majority of the shareholders of
the Corporation, or as soon as practicable thereafter, the Plan Shares shall be
awarded to Participants listed in, and in the amounts set forth in, Exhibit A.
6. Vesting of Shares.
-----------------
(a) Shares granted under this Plan shall vest and the right of a
Participant to the Plan Shares shall be nonforfeitable in accordance with the
following schedule:
2
<PAGE>
<TABLE>
<CAPTION>
Date When Plan Shares Percentage of Plan
Become Vested Shares Vested
--------------------- -------------------
<S> <C>
First Anniversary of Award of Plan Shares 20%
Second Anniversary of Award of Plan Shares 20%
Third Anniversary of Award of Plan Shares 20%
Fourth Anniversary of Award of Plan Shares 20%
Fifth Anniversary of Award of Plan Shares 20%
</TABLE>
(b) In determining the number of shares vested under the above vesting
schedule, a Participant shall not receive fractional shares. If the product
resulting from multiplying the vested percentage times the allocated shares
results in a fractional share, then a Participant's vested right shall be
rounded down to the nearest whole number of shares.
(c) In the event any Participant shall no longer be either a director
or an employee of the Bank or any Subsidiary for any reason, other than as
provided in subparagraph 6(d)below, and such Participant does not have a 100%
vested interest in his or her shares under the Plan, then any shares which are
not vested, based upon the applicable schedule in subparagraph 6(a) above, shall
be forfeited and shall be available again for Awards to Participants as may be
determined by the Committee.
(d) In the event that a Participant shall no longer be an employee or
a director of the Bank or any Subsidiary because of such Participant's
disability or death, prior to the date when all shares allocated to him or her
would be 100% vested in accordance with the schedule in subparagraph 6(a) above,
then, notwithstanding the foregoing schedule in subparagraph 6(a) above, all
shares allocated to such Participant shall immediately become fully vested and
nonforfeitable. For purposes of this Plan, the term "disability" shall be
defined in the same manner as such term is defined in Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended (the "Code").
7. Action Required of Participants.
-------------------------------
(a) If required by the Committee, each Participant receiving an Award
of shares under this Plan shall represent to and agree with the Corporation, the
Bank, the Committee and the Trustees (i) that he is acquiring such shares on his
own behalf as an investment and not with a present intention of distribution or
re-sale and (ii) that there shall be placed upon the certificates representing
such shares a legend setting forth these representations and agreements or a
reference thereto. Such shares shall be transferable thereafter only if the
proposed transfer shall be permissible under this Plan and if, in the opinion of
counsel for the Corporation, such transfer shall at such time be in compliance
with all applicable federal and state securities laws and regulations.
(b) Each Participant receiving an Award of Plan Shares under this Plan
shall deliver to the Bank a Stock Grant Agreement, substantially in the form
attached hereto as Exhibit B, as modified as the Committee deems necessary or
desirable (a "Stock Grant Agreement"), which shall be signed by such
Participant.
3
<PAGE>
8. Restrictions.
------------
(a) Plan Shares subject to an award made under this Plan shall
forthwith, after the Participant makes any representations required by paragraph
7 hereof, be issued in a certificate or certificates for such shares which shall
be prepared in the name of such Participant or any transferee permitted by
paragraph 12(a) (a "Permitted Transferee"). Such Participant or transferee shall
thereupon be a shareholder with respect to all of the shares represented by such
certificate or certificates and shall have all of the rights of a shareholder
with respect to all of such shares, including the right to vote such shares and
to receive all dividends and other distributions with respect thereto subject to
possible forfeiture as set forth in paragraph 6 and subject to the provisions of
paragraph 10 hereof.
(b) Certificates of stock representing shares subject to an Award made
under this Plan shall be imprinted with a legend to the effect that the shares
represented are subject to restrictions on transfer and potential forfeiture in
accordance with the terms of the Stock Grant Agreement and this Plan, and the
transfer agent for Common Stock shall be instructed to that effect with respect
to such shares. In aid of such restrictions, the Participant or Permitted
Transferee shall, immediately upon receipt of the certificate or certificates,
deposit such certificate or certificates together with a stock power or other
instrument of transfer, appropriately endorsed in blank, with the Trustees or
with such other escrow agent as may be designated by the Trustees, with the
expenses of any such escrow arrangement to be borne by the Bank.
(c) In addition, all Plan Shares which are awarded with respect to
Participants who are directors or executive officers of the Bank, without the
written consent of the Administrator of the Savings Institutions Division of the
North Carolina Department of Commerce, may not be sold during a period of one
year following the effective date of the Conversion, except upon death of the
director or executive officer. Certificates of stock representing Plan Shares
awarded with respect to Participants who are directors and executive officers of
the Bank (including those transferred to Permitted Transferees) shall be
imprinted with a legend to that effect, and the transfer agent for such Plan
Shares shall be instructed to that effect with respect to such shares.
(d) In the event that, as the result of a stock split or stock
dividend or combination of shares or any other change or exchange for other
securities by reclassification, reorganization, merger, consolidation,
recapitalization, or otherwise, a Participant or Permitted Transferee shall, as
the owner of the shares subject to an Award made under this Plan and subject to
the restrictions hereunder, be entitled to new or additional or different shares
of Common Stock or other securities, the certificate or certificates for, or
other evidence of, such new or additional or different shares or other
securities, together with a stock power or other instrument of transfer
appropriately endorsed, shall also be imprinted with one or more legends as
provided in subparagraph 8(b) and 8(c) above and deposited by such Participant
or Permitted Transferee with the Trustees, and all provisions of this Plan
relating to vesting, restrictions and lapse of restrictions herein set forth
shall thereupon be applicable to such new or additional or different shares or
other securities to the extent applicable to the shares with respect to which
they were distributed; provided, however, that if a Participant or Permitted
Transferee should receive rights, warrants or fractional interests in respect of
any of such shares then being held under the terms of this Plan, such rights or
warrants may be held, exercised, sold or otherwise disposed of, and
4
<PAGE>
such fractional interests may be settled, by such Participant or Permitted
Transferee free and clear of the restrictions herein set forth.
(e) The restriction to which shares subject to an Award made under
this Plan shall be subject is that if the directorship or employment of the
Participant with respect to whom an Award is made (whichever position resulted
in the Award) should be terminated for any reason during the "restricted period"
(as defined in subparagraph 12(b) hereof), except as otherwise specifically
provided in paragraph 6 hereof, the Participant's or Permitted Transferee's
interest in the shares issued under this Plan shall be forfeited as provided in
the applicable schedule in subparagraph 6(a) hereof.
9. Effect of Award on Status of Participant. The fact that an Award is
----------------------------------------
made to a Participant under this Plan shall not confer on such Participant any
right to continued service on the Board or on the Board of Directors of any
Subsidiary, nor any right to continued employment with the Bank or any
Subsidiary; nor shall it limit the right of the Bank, the Corporation, or any
Subsidiary to remove such Participant from any such boards, or to terminate his
or her employment at any time.
10. Voting Rights; Dividends; Other Distributions. After an Award of Plan
---------------------------------------------
Shares to a Participant or Permitted Transferee, the Participant or Permitted
Transferee shall have the full power to vote all of the Plan Shares held by the
Trustees in his name from time to time and shall be entitled to receive all cash
dividends declared upon any such Plan Shares held by the Trustees in his name
from time to time. All shares of Common Stock or other securities, including
but not limited to stock dividends, issued in respect of such Plan Shares or in
substitution thereof, whether by the Corporation or by another issuer, shall be
held by the Trustees and shall be subject to all terms and conditions of this
Plan and shall be redelivered to a Participant or Permitted Transferee or
delivered as instructed by the Committee under the same circumstances as the
shares with respect to, or in substitution for, which they were issued;
provided, however, that if a Participant or Permitted Transferee should receive
rights, warrants or fractional interests in respect of any of the shares held by
the Trustees in his name, such rights or warrants may be held, exercised, sold
or otherwise disposed of, and such fractional interests may be settled, by such
Participants or Permitted Transferees free and clear of the restrictions herein
set forth.
Notwithstanding the foregoing, if a Participant or Permitted Transferee
hereunder forfeits any Plan Shares pursuant to the terms of this Plan, the
Participant or Permitted Transferee, as applicable, shall, within 30 days after
the effective date of such forfeiture, pay the Corporation an amount equal to
the dividends received by such Participant or Permitted Transferee with respect
to such forfeited Plan Shares.
11. Adjustment Upon Changes in Capitalization; Dissolution or Liquidation.
---------------------------------------------------------------------
In the event of a change in the number or type of shares of Common Stock
outstanding, or in the event shares of Common Stock are decreased, changed into
or exchanged for securities of a different entity, by reason of a
reclassification, recapitalization, reorganization, or other similar capital
adjustment; merger or consolidation of the Corporation; or the sale by the
Corporation of all or a substantial portion of its assets, or the occurrence of
any other event which could affect the implementation of this Plan and the
realization of its objectives, the number or kind of shares subject to Awards
which have occurred, or could occur, under this Plan shall be proportionately
and equitably adjusted by the Committee.
5
<PAGE>
12. Non-Transferability.
-------------------
(a) Any shares subject to an Award made under this Plan shall not be
sold, exchanged, transferred, pledged, hypothecated or otherwise disposed of
during the "restricted period." Nothing herein shall preclude a Participant from
making a gift of any such shares to a spouse, child, stepchild, grandchild,
parent or sibling, or legal dependent of such Participant, to a trust of which
the beneficiary or beneficiaries of the trust shall be either a person
designated herein or such Participant, or to a civic or charitable organization
designated by the Participant; provided, however, that any such shares so given
by a Participant shall remain subject to the restrictions, obligations and
conditions set forth in this Plan, including, but not limited to, the escrow
provisions set forth in paragraph 8(b). In addition, such shares may be tendered
in response to a tender offer for or a request or invitation to tenders of
greater than fifty percent (50%) of the outstanding Common Stock and may be
surrendered in a merger, consolidation or share exchange involving the
Corporation; provided, however, in each case, that except as otherwise provided
herein, the securities or other consideration received in exchange therefor
shall thereafter be subject to the restrictions and conditions set forth in this
Plan, including, but not limited to, the escrow provisions set forth in
paragraph 8(b)
(b) The term "restricted period" with respect to shares subject to an
Award made under this Plan shall be the period commencing on the date of making
such Award of such shares to a Participant and ending on the date on which such
shares are no longer subject to forfeiture as provided in paragraph 6 hereof.
The date of making an Award shall be the date of execution by a Participant of a
Stock Grant Agreement in the form referred to in subparagraph 7(b) hereof.
13. Impact of Award on Other Benefits of Participant. The value of any
------------------------------------------------
Award, either on the date of the Award or at the time such shares become vested,
shall not be includable as compensation or earnings for purposes of any other
benefit plan offered by the Bank, the Corporation or any Subsidiary.
14. Corporate Action. The making of an Award under this Plan shall not
----------------
affect in any way the right or power of the Corporation or its shareholders or
the Bank or its shareholders or any Subsidiary or its shareholders to make or
authorize any adjustment, recapitalization, reorganization, or other change in
the Corporation's, the Bank's or any Subsidiary's capital structure or its
business, or any merger or consolidation of the Corporation, the Bank or any
Subsidiary, or the issuance of any bonds, debentures, preferred or other capital
stock or rights with respect thereto, or the dissolution or liquidation of the
Corporation, the Bank or any Subsidiary, or any sale or transfer of all or any
part of the Corporation's, the Bank's or any Subsidiary's assets or business.
15. Tax Withholding. The Bank, the Corporation or any Subsidiary shall
---------------
have the right to deduct or otherwise effect a withholding of any amount
required by federal or state laws to be withheld with respect to the making of
an Award or the sale of shares acquired under this Plan in order for the Bank,
the Corporation or any Subsidiary to obtain a tax deduction otherwise available
as a consequence of such Award or sale, as the case may be.
16. Exculpation and Indemnification. In connection with this Plan, no
-------------------------------
member of the Board, no member of the Board of Directors of the Corporation, no
member of the Committee and no Trustee
6
<PAGE>
shall be personally liable for any act or omission to act in his capacity as a
member of the Board, the Board of Directors of the Corporation or the Committee
or as a Trustee, nor for any mistake in judgment made in good faith, unless
arising out of, or resulting from, such person's own bad faith, willful
misconduct, or criminal acts. To the extent permitted by applicable law and
regulation, the Bank shall indemnify, defend and hold harmless the members of
the Board, the members of the Board of Directors of the Corporation and the
Committee and each Trustee and each other officer or employee of the Bank, the
Corporation or of any Subsidiary to whom any duty or power relating to the
administration or interpretation of this Plan may be assigned or delegated, from
and against any and all liabilities (including any amount paid in settlement of
a claim with the approval of the Board) and any costs or expenses (including
counsel fees) incurred by such persons arising out of, or as a result of, any
act or omission to act in connection with the performance of such person's
duties, responsibilities, and obligations under this Plan, other than such
liabilities, costs, and expenses as may arise out of, or result from, the bad
faith, willful misconduct, or criminal acts of such persons.
17. Amendment and Modification of this Plan. The Board may at any time,
---------------------------------------
and from time to time, amend or modify this Plan (including the form of Stock
Grant Agreement) in any respect; provided, however, any amendment or
modification of this Plan shall not in any manner affect any Award of shares
theretofore made to a Participant under this Plan without the consent of such
Participant or any permitted transferee of such Participant and further provided
that no amendment shall be made to paragraph 5 of the Plan more than once every
six months other than to comport with changes in the Code, the Employee
Retirement Income Security Act or the rules thereunder.
18. Termination and Expiration of this Plan. This Plan may be abandoned,
---------------------------------------
suspended, or terminated, in whole or in part, at any time by the Board;
provided, however, that abandonment, suspension, or termination of this Plan
shall not affect any Award theretofore made under this Plan; and provided
further, that in no event shall this Plan be terminated at the time of or
following any merger or consolidation of the Corporation or the Bank, unless and
until the surviving entity shall have made provision for an equivalent benefit
for all the then current participants in the Plan. Unless sooner terminated,
this Plan shall terminate at the close of business on the day that is the tenth
(10th) anniversary of the date of approval of the Plan by a majority of the
shareholders of the Corporation; and no Award of shares may be made under this
Plan thereafter. Such termination shall not effect any Award of shares
theretofore made. In the event that the Board terminates this Plan in whole,
any shares held by the Trustees pursuant to paragraph 2(d) which have not been
allocated to eligible Participants, together with any other trust assets, shall
revert to the Bank.
19. Effective Date. This Plan has been adopted by the Board to be
--------------
effective as of the date of approval of the Plan by a majority of the
shareholders of the Corporation as required by the regulations of the Federal
Deposit Insurance Corporation.
20. Captions and Headings; Gender and Number. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part hereof, and shall not serve as a
basis for interpretation or construction of this Plan. As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.
7
<PAGE>
21. Expenses of Administration of Plan. All costs and expenses incurred
----------------------------------
in the operation and administration of this Plan shall be borne by the Bank or
by a Subsidiary.
22. Governing Law. Without regard to the principles of conflicts of laws,
-------------
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.
23. Inspection of Plan. A copy of this Plan, and any amendments thereto,
------------------
shall be maintained by the Secretary of the Bank and shall be shown to any
proper person making inquiry about it.
8
<PAGE>
EXHIBIT A
Percentage of Total
Name Plan Shares/1
- ---- -------------------
- -------------------
/1/Total Plan Shares shall be equal to four percent (4%) of the number of
shares of Common Stock issued by the Corporation in connection with the
Conversion.
<PAGE>
EXHIBIT B
STATE OF NORTH CAROLINA
COUNTY OF STANLY
STOCK GRANT AGREEMENT
THIS STOCK GRANT AGREEMENT (the "Agreement") is made and entered into as of
the of , (the "Effective Date"), by and among
---- ------------------- -------
Home Savings Bank of Albemarle, Inc., S.S.B., (the "Bank"), a North Carolina
corporation, (the "Participant") and
-----------------------
, and (the "Trustees").
- -------------------- ---------------- -----------------
WHEREAS, a Management Recognition Plan (the "Plan") was adopted by the
Board of Directors of the Bank (the "Bank") and approved by the Board of
Directors and by a majority of the shareholders of South Street Financial Corp.,
the holding company of the Bank (the "Corporation").
WHEREAS, it has been determined that it is desirable and in the best
interest of the Bank to make an award (the "Award") of certain shares of the
Common Stock of the Corporation, under the Plan, to the Participant, subject to
certain restrictions as specified below; and
WHEREAS, capitalized terms not otherwise defined herein shall have the same
meaning given to such terms in the Plan.
NOW, THEREFORE, the Parties agree as follows:
1. Date of Award. The date of making the Award under this Agreement is
-------------
the day of , . This Award has been made in
----- ----------------- ------
recognition of the Participant's status and service as a of
--------------------
. The Participant is or
- --------------------------------------------- ---- -----
is not a director or executive officer of the Bank.
2. Receipt by Participant. The Participant acknowledges receipt of
----------------------
( ) shares of Common Stock (the
- -------------------------------- ----------
"Restricted Stock"), and agrees to the execution of stock powers or such other
transfer authorizations as the Committee shall request, in blank, covering the
Restricted Stock to be held by the Trustees until the Restricted Stock becomes
vested and nonforfeitable pursuant to the Plan and this Agreement.
3. Investment Representation and Transfer Restrictions.
---------------------------------------------------
(a) Investment Representation. Participant makes and agrees to the
-------------------------
investment representation, if any, attached hereto as Annex A, and the Committee
may cause a legend to be placed on any certificate representing any of the
shares of Restricted Stock to make appropriate reference to such representation.
(b) Securities Law and Regulations. The Participant agrees that the
-------------------------------
Restricted Stock shall be subject to such stop-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any
<PAGE>
stock exchange or interdealer quotation system upon which the Common Stock is
then listed and any other applicable federal or state securities laws, rules or
regulations, and the Committee may cause a legend or legends to be placed on any
certificate representing any of the shares of Restricted Stock to make
appropriate reference to such restrictions.
(c) Other Transfer Restrictions. If paragraph 1 above states that
---------------------------
Participant is a director or an executive officer of the Bank and if less than
one year has passed since the consummation of the Conversion (defined below),
the Participant agrees with the Bank that each certificate representing any of
the Restricted Stock may bear a legend, substantially in the form attached as
Annex B hereto, to the effect that, during the one year period following the
effective date of the conversion of the Bank from a North Carolina chartered
mutual savings bank to a North Carolina chartered stock savings bank (the
"Conversion"), the Restricted Stock represented thereby may not be sold without
the written consent of the Administrator of the Savings Institutions Division,
North Carolina Department of Commerce, except upon the death of the Participant.
3. Receipt by the Trustees. The Trustees acknowledge receipt from the
-----------------------
Participant of the Restricted Stock, registered in the name of the Participant,
and acknowledge receipt of stock powers executed in blank by the Participant
covering all of the Restricted Stock. The Restricted Stock shall be held by the
Trustees and distributed or transferred in accordance with the Plan and as set
forth herein.
4. Vesting and Delivery of Restricted Stock by the Trustees.
--------------------------------------------------------
(a) Periodic Vesting. Restricted Stock shall vest and become
----------------
nonforfeitable in accordance with the Plan.
(b) Delivery of Restricted Stock to the Participant. After (i) the
-----------------------------------------------
date on which shares of Restricted Stock have become vested as provided in the
Plan, the Committee shall instruct the Trustees to deliver to the Participant,
the Participant's designee, such other person as shall have been designated as
Participant's beneficiary in accordance with this Agreement, or any other
permitted recipient pursuant to the Plan, as applicable, certificates
representing the shares of Restricted Stock which have become vested and
nonforfeitable, as the Committee shall determine, free from any restrictions
imposed by this Agreement other than such restrictions and conditions as may be
deemed necessary by the Committee pursuant to paragraph 3 above.
(c) Delivery of Forfeited Restricted Stock. If the Restricted
--------------------------------------
Shares, or any of them, are forfeited pursuant to the Plan, the Board shall
instruct the Trustees concerning the disposition of such forfeited shares.
Thereafter such forfeited shares shall cease to be subject to this Agreement.
5. Repayment of Dividends. If the Participant hereunder forfeits any
----------------------
shares of Restricted Stock pursuant to the Plan, the Participant shall, within
30 days after the effective date of such forfeiture, pay the Corporation an
amount equal to the dividends received by the Participant with respect to
forfeited shares of Restricted Stock as set forth in the Plan.
6. Designation of Beneficiary. The Participant hereby designates the
--------------------------
person(s) described on Annex C as the beneficiary or beneficiaries who shall be
entitled to receive the Restricted Stock, if
<PAGE>
any, distributable to the Participant upon his death. The Participant may, from
time to time, revoke or change his beneficiary designation without the consent
of any prior beneficiary, if any, by filing a new designation with the
Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or revocation
thereof, shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date prior to
such receipt.
If no such beneficiary designation is in effect at the time of the
Participant's death, or if no designated beneficiary survives the Participant,
or if such designation conflicts with law, the Participant's estate shall be
deemed to have been designated his beneficiary and shall receive the Restricted
Stock, if any, distributable to the Participant upon his death. If the
Committee is in doubt as to the right of any person to receive such
distribution, the Committee may direct the Trustees to retain the Restricted
Stock, without liability for any interest in respect thereof, until the rights
thereto are determined, or the Committee may direct the transfer of such
Restricted Stock into any court of appropriate jurisdiction and such transfer
shall be deemed a complete discharge of the obligations of the Bank, the
Corporation, the Committee and Trustees hereunder.
7. Effect of Award on Status of Participant. The fact that an Award has
----------------------------------------
been made to the Participant under this Plan shall not confer on the Participant
any right to continued service on the Board or on the board of directors of any
Subsidiary, nor to continued employment with the Bank or any Subsidiary; nor
shall it limit the right of the Bank, the Corporation or of any Subsidiary to
remove the Participant from any such boards, or to terminate his employment at
any time without prior notice.
8. Impact of Award on Other Benefits of Participant. The value of the
------------------------------------------------
Restricted Stock on the date of the Award or at the time the Restricted Stock
becomes vested, shall not be includable as compensation or earnings for purposes
of any other benefit plan offered by the Bank, the Corporation or any
Subsidiary.
9. Tax Withholding. All Restricted Stock distributed pursuant to this
---------------
Agreement shall be subject to applicable federal, state and local withholding
for taxes. The Participant expressly acknowledges and agrees to such
withholding without regard to whether the Restricted Stock may then be sold or
otherwise transferred by the Participant.
10. Notices. Any notices or other communications required or permitted to
-------
be given under this Agreement shall be in writing and shall be deemed to have
been sufficiently given if delivered personally or three business days after
deposit in the United States mail as Certified Mail, return receipt requested,
properly addressed and postage prepaid, if to the Bank, the Committee or the
Trustees at the Bank's principal office address at 155 West South Street,
Albemarle, North Carolina 28001; and, if to the Participant, at his last address
appearing on the books of the Bank. The Bank and the Participant may change
their address or addresses by giving written notice of such change as provided
herein. Any notice or other communication hereunder shall be deemed to have
been given on the date actually delivered or as of the third (3rd) business day
following the date mailed as set forth above, as the case may be.
2
<PAGE>
11. Construction Controlled by Plan. The Plan, a copy of which is
-------------------------------
attached hereto as Annex D, is incorporated herein by reference. The Award of
Restricted Shares shall be subject to the terms and conditions of the Plan, and
the Participant hereby assumes and agrees to comply with all of the obligations
imposed upon the Participant in the Plan. This Agreement shall be construed so
as to be consistent with the Plan; and the provisions of the Plan shall be
deemed to be controlling in the event that any provision hereof should appear to
be inconsistent therewith.
12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.
13. Governing Law. Without regard to the principles of conflicts of laws,
-------------
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Agreement.
14. Modification of Agreement; Waiver. This Agreement may be modified,
---------------------------------
amended, suspended or terminated, and any terms, representations or conditions
may be waived, but only by a written instrument signed by each of the parties
hereto or their successors in interest. No waiver hereunder shall constitute a
waiver with respect to any subsequent occurrence or other transaction hereunder
or of any other provision hereof.
15. Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the parties hereto, and their respective heirs, legatees,
personal representatives, executors, and administrators, successors and assigns.
16. Entire Agreement. This Agreement and the Plan constitute and embody
----------------
the entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the matters
addressed herein.
17. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
18. Substitution of Trustee. In the event any new trustee is substituted
-----------------------
for any Trustee pursuant to the Plan, such substitute trustee shall also be
substituted as a Trustee hereunder.
3
<PAGE>
IN WITNESS WHEREOF, the Bank has caused this instrument to be executed in
its corporate name by its President, or one of its Vice Presidents, and attested
by its Secretary or one of its Assistant Secretaries, and its corporate seal to
be hereto affixed, all by, authority of its Board of Directors first duly given;
and each individual party hereto has hereunto set his hand and adopted as his
seal the typewritten word "SEAL" appearing beside his name, all done this the
day and year first above written.
HOME SAVINGS BANK OF ALBEMARLE,
INC., S.S.B.
By:
-------------------------------------
President
--------------------
ATTEST:
- -------------------------------------
Secretary
- -----------------------
[Corporate Seal]
PARTICIPANT
(SEAL)
-----------------------------
(SEAL)
-----------------------------
TRUSTEE
(SEAL)
-----------------------------
TRUSTEE
(SEAL)
-----------------------------
TRUSTEE
4
<PAGE>
ANNEX A
Investment Representation
-------------------------
<PAGE>
ANNEX B
Form of Legend
--------------
The shares represented by this certificate are subject to restrictions on
transfer and, for a period ending , 1996, may not be sold without
--------------
the written permission of the Administrator of the Savings Institutions
Division, North Carolina Department of Commerce, except in the event of the
death of the holder thereof.
<PAGE>
ANNEX C
Management Recognition Plan
---------------------------
Beneficiary Designation Form
----------------------------
As Beneficiary to receive any shares of stock distributable on my behalf
pursuant to the Home Savings Bank of Albemarle, Inc., S.S.B. Management
Recognition Plan, I hereby designate the following:
Name Address Relationship
Primary Beneficiary:
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
Contingent Beneficiary:
(if any)
-----------------------------------------------------
-----------------------------------------------------
-----------------------------------------------------
If more than one primary beneficiary is named, shares will be paid in equal
shares to surviving primary beneficiaries. Should the contingent beneficiaries
be eligible to receive the benefits (i.e., all primary beneficiaries are
deceased), such benefits will be paid in equal shares to such surviving
contingent beneficiaries.
Name of Spouse if not given above:
-------------------------------------------
- -------------------- ----------------------------------------------------
Witness Participant
----------------------------------------------------
Date
<PAGE>
ANNEX D
Management Recognition Plan
---------------------------
<PAGE>
Exhibit 10(f)
SOUTH STREET FINANCIAL CORP.
STOCK OPTION PLAN AND TRUST AGREEMENT
THIS IS THE SOUTH STREET FINANCIAL CORP. STOCK OPTION PLAN ("Plan") AND
TRUST AGREEMENT (the "Trust") of South Street Financial Corp. (the
"Corporation"), a North Carolina corporation, with its principal office in
Albemarle, Stanly County, North Carolina, adopted by the Board of Directors of
the Corporation and effective upon the approval of the Plan by a majority of the
shareholders of the Corporation and the receipt of all necessary regulatory
approvals, or as soon as practicable thereafter, under which options may be
granted from time to time to eligible directors and employees of the
Corporation, Home Savings Bank of Albemarle, Inc., S.S.B. (the "Bank") and of
any corporation or other entity of which either the Corporation or the Bank
owns, directly or indirectly, not less than fifty percent (50%) of any class of
equity securities (a "Subsidiary"), to purchase shares of common stock of the
Corporation ("Common Stock"), subject to the provisions set forth as follows:
1. PURPOSE OF THE PLAN. The purpose of the Plan is to aid the
-------------------
Corporation, the Bank and any Subsidiary in attracting and retaining capable
directors and employees and to provide a long range incentive for directors and
employees to remain in the management of the Corporation, the Bank or any
Subsidiary, to perform at increasing levels of effectiveness and to acquire a
permanent stake in the Corporation with the interest and outlook of an owner.
These objectives will be promoted through the granting of options to acquire
shares of Common Stock pursuant to the terms of this Plan.
2. ADMINISTRATION. The Plan shall be administered by the committee (the
--------------
"Committee"), who are three members of the Board of Directors of the Corporation
(the "Board") who are "disinterested persons" as described in Rule 16b-
3(c)(2)(i) of the Rules and Regulations under the Securities Act of 1934 (the
"Exchange Act"). Members of the Committee shall serve at the pleasure of the
Board. In the absence at any time of a duly appointed Committee, this Plan
shall be administered by those members of the Board who are "disinterested
persons," and by the Board if there are less than three "disinterested persons."
The Committee may designate any officers or employees of the Corporation, the
Bank or any Subsidiary to assist in the administration of the Plan and to
execute documents on behalf of the Committee and perform such other ministerial
duties as may be delegated to them by the Committee.
The Trust shall have three Trustees who shall be appointed by the Board and
shall serve at the pleasure of the Board.
Subject to the provisions of the Plan, the determinations or the
interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive upon all persons affected thereby. By way of
illustration and not of limitation, the Committee shall have the discretion (a)
to construe and interpret the Plan and all options granted hereunder and to
determine the terms and provisions (and amendments thereof) of the options
granted under the Plan (which need not be identical); (b) to define the terms
used in the Plan and in the options granted hereunder; (c) to prescribe, amend
and rescind the rules and regulations relating to the Plan; (d) to determine the
individuals to whom and the time or times at which such options shall be granted
(except for the options described in paragraph 6), the number of shares to be
subject to each option (except for the
<PAGE>
options described in paragraph 6), the option price, and the determination of
leaves of absence which may be granted to participants without constituting a
termination of their employment for the purposes of the Plan; and (e) to make
all other determinations necessary or advisable for the administration of the
Plan.
It shall be in the discretion of the Committee to grant options which
qualify as "incentive stock options" (as that term is defined in Section 422 of
the Internal Revenue Code of 1986, as amended) or which do not qualify as
incentive stock options and which will be given tax treatment as "nonqualified
stock options" (herein referred to collectively as "options;" however, whenever
reference is specifically made only to "incentive stock options" or
"nonqualified stock options," such reference shall be deemed to be made to the
exclusion of the other). Any options granted which fail to satisfy the
requirements for incentive stock options shall become nonqualified stock
options.
3. STOCK AVAILABLE FOR OPTIONS. In the discretion of the Committee, the
---------------------------
stock to be subject to options under the Plan shall be authorized but unissued
shares of Common Stock which are issued to and held by the Trust and/or shares
of Common Stock which are acquired by the Trust in the open market. The total
number of shares of Common Stock for which options may be granted under the Plan
is the number of shares equal to ten percent (10%) of the total number of shares
of Common Stock issued by the Corporation in connection with the conversion of
the Bank from a North Carolina mutual savings bank to a North Carolina stock
savings bank on __________________, 1996 (the "Conversion"). Such number of
shares is subject to any capital adjustments as provided in Section 15. In the
event that an option granted under the Plan is forfeited, released, expires or
is terminated unexercised as to any shares covered thereby, such shares
thereafter shall be available for the granting of options under the Plan;
however, if the forfeiture, expiration, release or termination date of an option
is beyond the term of existence of the Plan as described in Section 22, then any
shares covered by forfeited, unexercised, released or terminated options shall
not reactivate the existence of the Plan and therefore may not be available for
additional grants under the Plan. The Corporation, until the Trust has acquired
all shares of Common Stock necessary to satisfy options granted under the Plan,
will reserve and keep available a number of shares of Common Stock sufficient to
satisfy the requirements of the Plan.
4. CONTRIBUTIONS TO TRUST. The Board shall determine the amount (or the
----------------------
method of computing the amount) and timing of any contributions by the
Corporation, the Bank and any Subsidiary to the Trust established under this
Plan. Such amounts may be paid in cash or in shares of Common Stock and shall
be paid to the Trust at the designated time of contribution. No contributions
by participants under the Plan shall be permitted.
Except for amounts distributed to the Trust pursuant to Section 17 (which
shall be invested as set forth in Section 19), the Trustees shall invest all of
the Trust's assets primarily in Common Stock. The aggregate number of shares of
Common Stock available for distribution pursuant to this Plan, as set forth in
Section 3 above, shall be acquired by the Trustees subsequent to approval of the
Plan by the Corporation's shareholders and after receipt of all necessary
regulatory approvals. In the event that cash is contributed to the Trust and it
is necessary for the Trustees to acquire shares of Common Stock in the open
market, such shares shall be acquired at such time and on such terms as the
Trustees deem appropriate, provided all shares necessary to satisfy granted
options are acquired
2
<PAGE>
prior to the time any options become vested and nonforfeitable pursuant to the
terms hereof, which shares shall be acquired with funds contributed by the
Corporation, the Bank or any Subsidiary.
5. ELIGIBILITY. Options shall be granted only to individuals who meet all
-----------
of the following eligibility requirements:
(a) Such individual must be an employee or a member of the Board
of Directors of the Corporation, the Bank or a Subsidiary. For this
purpose, an individual shall be considered to be an "employee" only if
there exists between the Corporation, the Bank or a Subsidiary and the
individual the legal and bona fide relationship of employer and employee.
In determining whether such relationship exists, the regulations of the
United States Treasury Department relating to the determination of such
relationship for the purpose of collection of income tax at the source on
wages shall be applied.
(b) Such individual must have such knowledge and experience in
financial and business matters that he or she is capable of evaluating the
merits and risks of the investment involved in the exercise of the options.
(c) Such individual, being otherwise eligible under this Section
5, shall have been selected by the Committee as a person to whom an option
shall be granted under the Plan or shall have been designated in Section 6
hereof.
In determining the directors and employees to whom options shall be granted
and the number of shares to be covered by each option, the Committee shall take
into account the nature of the services rendered by respective directors and
employees, their present and potential contributions to the success of the
Corporation, the Bank and any Subsidiary and such other factors as the Committee
shall deem relevant. A director or employee who has been granted an option
under the Plan may be granted an additional option or options under the Plan if
the Committee shall so determine.
If, pursuant to the terms of the Plan, it is necessary that the percentage
of stock ownership of any individual be determined, stock ownership in the
Corporation or of a related corporation which is owned (directly or indirectly)
by or for such individual's brothers and sisters (whether by the whole or half
blood), spouse, ancestors, and lineal descendants or by or for any corporation,
partnership, estate or trust of which such employee is a shareholder, partner or
beneficiary shall be considered as owned by such director or employee.
6. INITIAL GRANTS. Subject to the provisions of this Plan, options shall
--------------
be awarded to the directors and employees as set forth on Exhibit A. Such
options shall be granted after the date the Plan is approved by a majority of
the Corporation's shareholders and by all necessary regulatory authorities, and
after execution by the optionee of a Stock Option Grant and Agreement (the
"Option Agreement") in the form attached hereto as Exhibit B as modified by the
Committee to the extent it deems such modification to be necessary or desirable.
Such options shall be granted with the intention that they will be nonqualified
or incentive stock options as denominated in the Option Agreement. Any option
granted with the intention that it will be an incentive stock option but which
3
<PAGE>
fails to satisfy a requirement for incentive stock options shall continue to be
valid and shall be treated as a nonqualified stock option.
7. OPTION PRICE.
------------
(a) The option price of each option granted under the Plan shall
be not less than one hundred percent (100%) of the market value of the
stock on the date of grant of the option. In the case of incentive stock
options granted to a shareholder who owns stock possessing more than 10
percent (10%) of the total combined voting power of all classes of stock of
the Corporation, the Bank or a Subsidiary (a "ten percent shareholder"),
the option price of each option granted under the Plan shall not be less
than one hundred and ten percent (110%) of the market value of the stock on
the date of grant of the option. If the Common Stock is listed on a
national securities exchange (including the NASDAQ National Market System)
on the date in question, then the market value per share shall be not less
than the average of the highest and lowest selling price on such exchange
on such date, or if there were no sales on such date, then the market price
per share shall be equal to the average between the bid and asked price on
such date. If the Common Stock is traded otherwise than on a national
securities exchange on the date in question, then the market price per
share shall be equal to the average between the bid and asked price on such
date, or, if there is no bid and asked price on such date, then on the next
prior business day on which there was a bid and asked price. If no such bid
and asked price is available, then the market value per share shall be its
fair market value as determined by the Committee, in its sole and absolute
discretion. The Committee shall maintain a written record of its method of
determining such value.
(b) The option price shall be payable to the Corporation either
(i) in cash or by check, bank draft or money order payable to the order of
the Corporation, or (ii) at the discretion of the Committee, through the
delivery of shares of the common stock of the Corporation owned by the
optionee with a market value (determined in a manner consistent with (i)
above) equal to the option price, or (iii) at the discretion of the
Committee by a combination of (i) and (ii) above. No shares shall be
delivered until full payment has been made. The Committee may not approve a
reduction of such purchase price in any such option, or the cancellation of
any such options and the regranting thereof to the same optionee at a lower
purchase price, at a time when the market value of the shares is lower than
it was when such option was granted.
8. EXPIRATION OF OPTIONS. The Committee shall determine the expiration
---------------------
date or dates of each option, but such expiration date shall be not later than
ten (10) years after the date such option is granted. In the event an incentive
stock option is granted to a ten percent shareholder, the expiration date or
dates of each option shall be not later than five (5) years after the date such
option is granted. The Committee, in its discretion, may extend the expiration
date or dates of an option after such date was originally set; however, such
expiration date may not exceed the maximum expiration date described in this
Section 8.
4
<PAGE>
9. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) All options must be granted within ten (10) years of the Effective
Date of this Plan as defined in Section 21.
(b) The Committee may grant options which are intended to be incentive
stock options and nonqualified stock options, either separately or jointly,
to an eligible employee.
(c) The grant of options shall be evidenced by a written instrument
(an Option Agreement) containing terms and conditions established by the
Committee consistent with the provisions of this Plan.
(d) Not less than 100 shares may be purchased at any one time unless
the number purchased is the total number at that time purchasable under the
Plan.
(e) The recipient of an option shall have no rights as a shareholder
with respect to any shares covered by his option until payment in full by
him for the shares being purchased. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is
prior to the date such stock is fully paid for, except as provided in
Section 15.
(f) The aggregate fair market value of the stock (determined as of the
time the option is granted) with respect to which incentive stock options
are exercisable for the first time by any participant during any calendar
year (under all benefit plans of the Corporation, the Bank or any
Subsidiary, if applicable) shall not exceed $100,000; provided, however,
that such $100,000 limit of this subsection (f) shall not apply to the
grant of nonqualified stock options. The Committee may grant options which
are exercisable in excess of the foregoing limitations, in which case
options granted which are exercisable in excess of such limitation shall be
nonqualified stock options.
(g) All stock obtained pursuant to an option which qualifies as an
incentive stock option shall be held in escrow for a period which ends on
the later of (i) two (2) years from the date of the granting of the option
or (ii) one (1) year after the transfer of the stock pursuant to the
exercise of the option. The stock shall be held by the Corporation or its
designee. The employee who has exercised the option shall during such
holding period have all rights of a shareholder, including but not limited
to the rights to vote, receive dividends and sell the stock. The sole
purpose of the escrow is to inform the Corporation of a disqualifying
disposition of the stock within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended, and it shall be administered solely for
that purpose.
10. EXERCISE OF OPTIONS.
-------------------
(a) An optionee receiving options by virtue of his position as a
director must remain continuously a member of the Board of Directors of the
Corporation, the Board of Directors of the Bank or the Board of Directors
of one or more of the Subsidiaries from the date of the
5
<PAGE>
grant until the exercise of the option except as provided in Sections 11, 12 and
13 of this Plan. An optionee receiving options by virtue of his position as an
employee must at all times be employed by the Corporation, the Bank or a
Subsidiary from the date of grant until the exercise of the options granted
except as provided in Sections 11, 12 and 13. All options granted under the
Plan shall be exercisable in annual installments in accordance with the
following schedule:
twenty percent (20%) of the shares beginning 1 year after the date of the
grant of the options;
twenty percent (20%) of the shares beginning 2 years after the date of the
grant of the options;
twenty percent (20%) of the shares beginning 3 years after the date of the
grant of the options;
twenty percent (20%) of the shares beginning 4 years after the date of the
grant of the options; and
twenty percent (20%) of the shares beginning 5 years after the date of the
grant of the options.
Notwithstanding the foregoing, options shall become exercisable with respect to
all of the shares subject thereto upon the optionee's death or upon the
optionee's disability within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended.
The right to exercise options in annual installments shall be cumulative and any
vested installments may be exercised, in whole or in part, at the election of
the optionee. The exercise of any option must be evidenced by written notice to
the Corporation that the optionee intends to exercise his option.
In no event shall an option be deemed granted by the Corporation or exercisable
by a recipient prior to the mutual execution by the Corporation and the
recipient of an Option Agreement which comports with the requirements of Section
6 and Section 9(c).
(b) The inability of the Corporation or Bank to obtain approval from any
regulatory body or authority deemed by counsel to be necessary to the lawful
issuance and sale of any shares of Common Stock hereunder shall relieve the
Corporation and the Bank of any liability in respect of the non-issuance or sale
of such shares. As a condition to the exercise of an option, the Corporation
may require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities laws.
(c) The Committee shall have the discretionary authority to impose in the
Option Agreements such restrictions on shares of Common Stock as it may deem
appropriate or
6
<PAGE>
desirable, including but not limited to the authority to impose a right of
first refusal or to establish repurchase rights or both of these
restrictions.
11. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - EXCEPT BY DISABILITY OR
-------------------------------------------------------------------
DEATH. If any optionee receiving the grant of an option by virtue of his
- -----
position as a director ceases to be a director of at least one of the
Corporation, the Bank or any Subsidiary for any reason other than death or
disability (as defined in Section 12) or if any optionee receiving the grant of
an option by virtue of his position as an employee ceases to be an employee of
at least one of the Corporation, the Bank and any Subsidiary for any reason
other than death or disability (as defined in Section 12), he may, (i) at any
time within three (3) months after his date of termination, but not later than
the date of expiration of the option, exercise any option designated in the
Option Agreement as an incentive stock option and (ii) at any time prior to the
date of expiration of the option, exercise any option designated in the Option
Agreement as a nonqualified stock option. However, in either such event the
optionee may exercise any option only to the extent it was vested and he or she
was entitled to exercise the option on the date of termination. Any options or
portions of options of terminated directors or employees not so exercised shall
terminate and be forfeited.
12. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - DISABILITY. If any
------------------------------------------------------
optionee receiving the grant of an option by virtue of his position as a
director ceases to be a director of at least one of the Corporation, the Bank or
any Subsidiary due to his becoming disabled within the meaning of Section
22(e)(3) of the Internal Revenue Code of 1986, as amended, or if any employee
receiving the grant of an option by virtue of his position as an employee ceases
to be employed by at least one of the Corporation, the Bank and any Subsidiary
due to his becoming disabled within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended, he may, (i) at any time within 12
months after his date of termination, but not later than the date of expiration
of the option, exercise any option designated in the Option Agreement as an
incentive stock option with respect to all shares subject thereto and (ii) at
any time prior to the date of expiration of the option, exercise any option
designated in the Option Agreement as a nonqualified stock option with respect
to all shares subject thereto. Any portions of options of terminated directors
or employees not so exercised shall terminate.
13. TERMINATION OF DIRECTORSHIP OR EMPLOYMENT - DEATH. If an optionee
-------------------------------------------------
receiving the grant of an option by virtue of his position as a director dies
while a director of the Corporation, the Bank or any Subsidiary or if any
employee receiving the grant of an option by virtue of his position as an
employee dies while in the employment of the Corporation, the Bank or a
Subsidiary, the person or persons to whom the option is transferred by will or
by the laws of descent and distribution may exercise the option at any time
until the term of the option has expired, with respect to all shares subject
thereto, to the same extent and upon the same terms and conditions the optionee
would have been entitled to do so had he lived. Any options or portions of
options of deceased directors or employees not so exercised shall terminate.
14. RESTRICTIONS ON TRANSFER. An option granted under this Plan may not
------------------------
be transferred except by will or the laws of descent and distribution and,
during the lifetime of the optionee to whom it was granted, may be exercised
only by such optionee.
7
<PAGE>
15. CAPITAL ADJUSTMENTS AFFECTING COMMON STOCK.
------------------------------------------
(a) If the outstanding shares of Common Stock of the Corporation are
increased, decreased, changed into or exchanged for a different number or
kind of shares or other securities of the Corporation or another entity as
a result of a recapitalization, reclassification, stock dividend, stock
split, amendment to the Corporation's Certificate of Incorporation, reverse
stock split, merger or consolidation, an appropriate adjustment shall be
made in the number and/or kind of securities allocated to the options
previously and subsequently granted under the Plan, without change in the
aggregate purchase price applicable to the unexercised portion of the
outstanding options but with a corresponding adjustment in the price for
each share or other unit of any security covered by the options.
(b) To the extent that the foregoing adjustments relate to particular
stock or securities of the Corporation subject to option under this Plan,
such adjustments shall be made by the Committee, whose determination in
that respect shall be final and conclusive.
(c) The grant of an option pursuant to this Plan shall not affect in
any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell,
or transfer all or any part of its business or assets.
(d) No fractional shares of stock shall be issued under the Plan for
any such adjustment.
(e) Any adjustment made pursuant to this Section 15, shall be made in
such manner as not to constitute a modification of any outstanding
incentive stock options within the meaning of Section 424(h) of the
Internal Revenue Code of 1986, as amended.
16. INVESTMENT PURPOSE. At the discretion of the Committee, any Option
------------------
Agreement may provide that the optionee shall, by accepting the option,
represent and agree, for himself and his transferees by will or the laws of
descent and distribution, that all shares of stock purchased upon the exercise
of the option will be acquired for investment and not for resale or
distribution, and that upon each exercise of any portion of an option, the
person entitled to exercise the same shall furnish evidence of such facts which
is satisfactory to the Corporation. Certificates for shares of stock acquired
under the Plan may be issued bearing such restrictive legends as the Corporation
and its counsel may deem necessary to ensure that the optionee is not an
"underwriter" within the meaning of the regulations of the Securities Exchange
Commission.
17. DISTRIBUTION OF DIVIDENDS. Any cash dividends, returns of capital or
-------------------------
other distributions paid or made in respect of any shares of Common Stock held
in the Trust, plus the earnings on such amounts, less amounts determined by the
Trustees to be needed to pay the expenses of the Trust, shall be paid by the
Trustees to the Corporation.
18. TRUST. The Trustees shall receive, hold, administer, invest and make
-----
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the
8
<PAGE>
applicable directions, rules, regulations, procedures and policies established
by the Committee pursuant to the Plan.
It is the intent of this Plan and Trust that the Trustees shall have
complete authority and discretion with respect to the arrangement, control and
investment of the Trust, and that the Trustees shall invest all assets of the
Trust, except for amounts received pursuant to Section 17 above, in Common Stock
to the fullest extent practicable, except (i) to the extent that the Trustees
determine that the holding of monies in cash or cash equivalents is necessary to
meet the obligations of the Trust and (ii) contributions to the Trust may be
temporarily invested in such interest-bearing account or accounts as the
Trustees shall determine to be appropriate. Amounts received by the Trustees
pursuant to Section 17 shall be invested in such interest-bearing accounts or in
other investments as the Trustees determine to be appropriate. In performing
their duties, the Trustee shall have the power to do all things and execute such
instruments as may be deemed necessary or proper, including the following
powers:
(a) To invest up to 100% of all Trust assets in Common Stock without
regard to any law now or hereafter in force limiting investments for
trustees or other fiduciaries. The investment authorized herein may
constitute the only investment of the Trust, except for the investment of
amounts received by the Trustees pursuant to Section 17, and in making such
investment, the Trustees are authorized to purchase Common Stock from the
Corporation or from any other source, and such Common Stock so purchased
may be outstanding or newly issued.
(b) To invest any Trust assets not otherwise invested in accordance
with (a) above, in such deposit accounts, certificates of deposit,
obligations of the United States Government or its agencies or such other
investments as shall be considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be maintained
showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may in the
opinion of the Trustees be reasonable for the proper operation of the Plan
and Trust.
(f) To employ brokers, agents, custodians, consultants and
accountants.
(g) To hire counsel to render advice with respect to its rights,
duties and obligations hereunder, and such other legal services or
representation as the Trustees deem desirable.
9
<PAGE>
(h) To hold funds and securities representing the amounts to be
distributed to an optionee or his beneficiary as a consequence of a dispute
as to the disposition thereof, whether in a segregated account or held in
common with other assets of the Trust.
Notwithstanding anything herein contained to the contrary, the Trustees
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of a court for the exercise of any power
herein contained, or to give any bond.
The Trustees shall maintain accurate and detailed records and accounts of
all transactions of the Trust, which shall be available at all reasonable times
for inspection by any legally entitled person or entity to the extent required
by applicable law, or any other person determined by the Committee.
After a stock option has been granted under this Plan, the optionee shall
be entitled to direct the Trustees as to the voting of the shares of Common
Stock held by the Trustees to satisfy the options which have been granted to
such optionee, regardless of whether or not such options have become vested and
nonforfeitable, subject to any rules and procedures adopted by the Committee for
this purpose. If any optionee does not direct the Trustees as to the voting of
the shares held to satisfy options granted to such optionee, such shares shall
not be voted by the Trustees. In the event a tender offer is made for shares of
Common Stock held to satisfy options granted to an optionee, the Trustees shall
tender shares held by the Trustees to satisfy options granted to such optionee
in accordance with instructions from such optionee. Shares of Common Stock held
by the Trustees to satisfy options not granted to an optionee shall be voted or
tendered by the Trustees in their sole discretion.
It is intended that the trust established hereby be treated as a Grantor
Trust of the Corporation under the provisions of Section 671 et seq. of the
Internal Revenue Code of 1986, as amended.
Notwithstanding anything to the contrary in this Plan or Trust, the assets
of the Plan and Trust are subject to the payment of the claims of creditors of
the Corporation in the event of its insolvency or bankruptcy. The Corporation
is insolvent or bankrupt if it is the subject of a proceeding under the
Bankruptcy Code, 11 U.S.C. Section 101 et seq. or is unable to pay its debts.
The Board of Directors or the chief executive officer of the Corporation must
give written notice to the Trustees of the Corporation's bankruptcy or
insolvency as soon as practicable following the occurrence of such event. Upon
receipt of such notice or other written allegations of the Corporation's
bankruptcy or insolvency, or in the case of the Trustees' actual knowledge of or
determination of the Corporation's bankruptcy or insolvency, the Trustees shall
discontinue delivery of Trust assets to the optionees or the Corporation and
shall hold the assets of the Trust for the benefit of the Corporation's general
creditors and, upon a determination that the Corporation is bankrupt or
insolvent, shall distribute such assets to or for the benefit of the general
creditors. The Trustees shall resume delivery of Trust assets to the optionees
or the Corporation only after it is determined that the Corporation is no longer
bankrupt or insolvent. Determination of the bankruptcy or insolvency shall be
determined by a court of competent jurisdiction or by an arbitrator selected by
and pursuant to rules of the American Arbitration Association upon petition by
an interested party.
19. APPLICATION OF FUNDS. The proceeds received by the Corporation from
--------------------
the sale of Common Stock pursuant to options will be used for general corporate
purposes.
10
<PAGE>
20. NO OBLIGATION TO EXERCISE OPTION. The granting of an option shall
--------------------------------
impose no obligation upon the optionee to exercise such option.
21. EFFECTIVE DATE OF PLAN. The Plan will become effective upon the
----------------------
approval of the Plan by a majority of the shareholders of the Corporation as
required by regulations of the FDIC and the receipt of all necessary regulatory
approvals.
22. TERM OF PLAN. Options may be granted pursuant to this Plan from time
------------
to time within ten (10) years from the effective date of the Plan.
23. TIME OF GRANTING OF OPTIONS. Nothing contained in the Plan or in any
---------------------------
resolution adopted or to be adopted by the Committee or the shareholders of the
Corporation and no action taken by the Committee shall constitute the granting
of any option hereunder. The granting of an option pursuant to the Plan shall
take place only when an Option Agreement shall have been duly executed and
delivered by and on behalf of the Corporation at the direction of the Committee.
24. WITHHOLDING TAXES. Whenever the Corporation proposes or is required
-----------------
to issue or transfer shares of stock or other assets under the Plan, the
Corporation shall have the right to require the optionee to remit to the
Corporation an amount sufficient to satisfy any Federal, state and/or local
withholding tax requirements prior to the issuance of any certificate or
certificates for such shares or delivery of other assets. Alternatively, the
Corporation may issue or transfer such shares of stock or make other
distributions of assets net of the number of shares or other amounts sufficient
to satisfy the withholding tax requirements. For withholding tax purposes, the
shares of stock and other assets to be distributed shall be valued on the date
the withholding obligation is incurred.
25. TERMINATION AND AMENDMENT. The Board may at any time alter, suspend,
-------------------------
terminate or discontinue the Plan, but may not, without the consent of the
holder of an option previously granted, make any alteration which would deprive
the optionee of his rights with respect thereto; provided, however, that
-------- -------
shareholder approval of certain amendments may be necessary if it is desirable
for the Plan to continue to satisfy the requirements of Rule 16b-3 of the
Securities Exchange Commission; and provided further, that in no event shall
-------- -------
this Plan be terminated at the time of or following any merger or consolidation
of the Corporation or the Bank, unless and until the surviving entity shall have
made provision for an equivalent benefit for all the then current option
holders. Notwithstanding anything herein to the contrary, the Board may not
amend Section 6 hereof or any other provisions of this Plan described in Rule
16b-3(c)(2)(ii)(A) of the regulations promulgated pursuant to the Exchange Act
more than once every six months, other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security Act, or the rules
thereunder.
26. CAPTIONS AND HEADINGS; GENDER AND NUMBER. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part, and shall not serve as a basis
for interpretation or construction of, this Plan. As used herein, the masculine
gender shall include the feminine and neuter, and the singular number shall
include the plural, and vice versa, whenever such meanings are appropriate.
11
<PAGE>
27. COST OF PLAN; EXCULPATION AND INDEMNIFICATION. All costs and expenses
---------------------------------------------
incurred in the operation and administration of the Plan and the Trust shall be
borne by the Corporation, the Bank and the Subsidiaries. In connection with
this Plan, no member of the Board, no member of the Board of Directors of the
Bank, and no member of the Board of Directors of any Subsidiary, no member of
the Committee and no Trustee shall be personally liable for any act or omission
to act, nor for any mistake in judgment made in good faith, unless arising out
of, or resulting from, such person's own bad faith, willful misconduct or
criminal acts. To the extent permitted by applicable law and regulation, the
Corporation shall indemnify, defend and hold harmless the members of the Board,
the members of the Board of Directors of the Bank and the members of the Board
of Directors of any Subsidiary, and members of the Committee, each Trustee, and
each other officer or employee of the Bank, the Corporation or of any Subsidiary
to whom any power or duty relating to the administration or interpretation of
this Plan may be assigned or delegated, from and against any and all liabilities
(including any amount paid in settlement of a claim with the approval of the
Board), and any costs or expenses (including counsel fees) incurred by such
persons arising out of or as a result of, any act or omission to act, in
connection with the performance of such person's duties, responsibilities and
obligations under this Plan, other than such liabilities, costs, and expenses as
may arise out of, or result from the bad faith, willful misconduct or criminal
acts of such persons.
28. GOVERNING LAW. Without regard to the principles of conflicts of laws,
-------------
the laws of the State of North Carolina shall govern and control the validity,
interpretation, performance, and enforcement of this Plan.
29. INSPECTION OF PLAN. A copy of this Plan, and any amendments thereto,
------------------
shall be maintained by the Secretary of the Corporation and shall be shown to
any proper person making inquiry about it.
30. OTHER PROVISIONS. The Option Agreements authorized under this Plan
----------------
shall contain such other provisions not inconsistent with the foregoing,
including, without limitation, increased restrictions upon the exercise of
options, as the Committee may deem advisable.
<PAGE>
EXHIBIT A
---------
Percentage of Total
Shares Subject to Option
Optionee Under Plan
- -------- ------------------------
<PAGE>
EXHIBIT B
---------
STOCK OPTION GRANT AND AGREEMENT
THIS STOCK OPTION GRANT AND AGREEMENT ("Agreement"), being made according
to and subject to the terms and conditions of the STOCK OPTION PLAN of South
Street Financial Corp. ("Plan"), a copy of which is attached hereto as Annex A
and is hereby incorporated by reference and made a part of this Agreement, is
herein executed and effective the _______ day of _______________, _____, between
South Street Financial Corp. (the "Corporation") and ____________________
("Optionee"):
1. Grant. As of the above date, the Corporation hereby grants: (i) an
-----
incentive stock option (as that term is defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code")) to purchase ________ shares of
Common Stock of the Corporation to the Optionee at the price stated in this
Agreement; and/or (ii) a nonqualified stock option to purchase __________ shares
of Common Stock of the Corporation to the Optionee at the price stated in this
Agreement.
The option(s) granted under this section and as described in this Agreement
is (are) in all respects subject to and conditioned by the terms, definitions,
and provisions of this Agreement and of the Plan. Capitalized terms in this
Agreement which are not otherwise defined but which are defined in the Plan
shall have the same meaning given to those terms in the Plan.
2. Price. The option price is $_____________ for each share.
-----
3. Exercise of Option. The option(s) granted under this Agreement shall
------------------
be exercisable pursuant to the terms and conditions of the Plan and as set forth
below:
(a) Right to Exercise: There are no other terms and conditions
-----------------
imposed on the Optionee's right to exercise his options other than those
imposed in the Plan, except as stated below:
------------------------------------------------------------------------
------------------------------------------------------------------------
(b) Annual Installments: Subject to the terms and conditions of
-------------------
the Plan, the incentive stock options can be exercised in annual
installments as follows:
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
<PAGE>
The nonqualified options can be exercised in annual installments as
follows:
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
__________________ shares beginning on ______________, 19__
The right to exercise the option(s) in annual installments shall be
cumulative. In addition, the option(s) shall be exercisable upon disability
and death as set forth in the Plan.
(c) Method of Exercise: The options under this Agreement shall be
------------------
exercisable by a written notice to the Secretary of the Corporation which
shall include the following:
(1) State the election to exercise the option, the number of
shares in respect of which it is being exercised, the person in
whose name the stock certificate or certificates for such shares of
Common Stock is to be registered, his or her address, and social
security number;
(2) Contain any such representation and agreements as to
Optionee's investment intent with respect to such shares of Common
Stock as may be required by the Corporation;
(3) Be signed by the person entitled to exercise the option
and, if the option is being exercised by any person or persons other
than the Optionee, be accompanied by proof, satisfactory to the
Corporation, of the right of such person or persons to exercise the
option in accordance with the Plan; and
(4) Be accompanied by payment of the purchase price of any
shares with respect to which the option is being exercised which
payment shall be in form acceptable to the Committee pursuant to
Section 6(b) of the Plan.
(d) Representations and Warranties: In order to exercise an option,
the person exercising the option must make the representations and
warranties to the Corporation as may be required by any applicable law or
regulation, or as may otherwise be required pursuant to the Plan.
(e) Approvals. In order for an option to be exercised, all filings
---------
and approvals required by applicable law and regulations or pursuant to the
Plan must have been made and obtained.
4. Non-transferability of Option. This option may not be transferred in
-----------------------------
any manner otherwise than by will or the laws of descent and distribution and
may be exercised during the life of the Optionee only by him or her.
2
<PAGE>
5. Investment Purpose. This option may not be exercised if the issuance
------------------
of shares upon such exercise would constitute a violation of any applicable
federal or state securities law or other law or valid regulation.
6. Expiration of Option. This option shall expire on __________, _______.
--------------------
7. Escrow. All stock purchased pursuant to an incentive stock option
------
shall be held in escrow for a period which ends on the later of (i) two (2)
years from the date of the granting of the option or (ii) one (1) year after the
transfer of the stock pursuant to the exercise of the option. The stock shall
be held by the Corporation or its designee. The optionee who has exercised the
option shall have all rights of a stockholder, including, but not limited to,
the rights to vote, receive dividends and sell the stock. The sole purpose of
the escrow is to inform the Corporation of a disqualifying disposition of the
stock within the meaning of Section 422 of the Code, and it shall be
administered solely for this purpose.
8. Resolution of Disputes. Any dispute or disagreement which should arise
----------------------
under, or as a result of, or in any way relate to, the interpretation,
construction, or application of this Agreement will be determined by the
Committee designated in Section 2 of the Plan. Any determination made by such
Committee shall be final, binding, and conclusive for all purposes.
9. Construction Controlled by Plan. The options evidenced hereby shall
-------------------------------
be subject to all of the requirements, conditions and provisions of the Plan.
This Agreement shall be construed so as to be consistent with the Plan; and the
provisions of the Plan shall be deemed to be controlling in the event that any
provision should appear to be inconsistent therewith.
10. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be valid and enforceable under
applicable law, but if any provision of this Agreement is determined to be
unenforceable, invalid or illegal, the validity of any other provision or part
thereof shall not be affected thereby and this Agreement shall continue to be
binding on the parties hereto as if such unenforceable, invalid or illegal
provision or part thereof had not been included herein.
11. Modification of Agreement; Waiver. This Agreement may be modified,
---------------------------------
amended, suspended or terminated, and any terms, representations or conditions
may be waived, but only by a written instrument signed by each of the parties
hereto and only subject to the limitations set forth in the Plan. No waiver
hereunder shall constitute a waiver with respect to any subsequent occurrence or
other transaction hereunder or of any other provision.
12. Captions and Headings; Gender and Number. Captions and paragraph
----------------------------------------
headings used herein are for convenience only, do not modify or affect the
meaning of any provision herein, are not a part, and shall not serve as a basis
for interpretation or construction, of this Agreement. As used herein, the
masculine gender shall include the feminine and neuter, and the singular number
shall include the plural, and vice versa, whenever such meanings are
appropriate.
3
<PAGE>
13. Governing Law; Venue and Jurisdiction. Without regard to the
-------------------------------------
principles of conflicts of laws, the laws of the State of North Carolina shall
govern and control the validity, interpretation, performance, and enforcement of
this Agreement.
14. Binding Effect. This Agreement shall be binding upon and shall inure
--------------
to the benefit of the Corporation, and its successors and assigns, and shall be
binding upon and inure to the benefit of the Optionee, and his or her heirs,
legatees, personal representative, executor, administrator and permitted
assigns.
15. Entire Agreement. This Agreement and the Plan constitute and embody
----------------
the entire understanding and agreement of the parties hereto and, except as
otherwise provided hereunder, there are no other agreements or understandings,
written or oral, in effect between the parties hereto relating to the matters
addressed herein.
16. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when executed and delivered shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have set their hands and seals the day and
year first above written.
ATTEST: SOUTH STREET FINANCIAL CORP.
__________________________ By: _______________________________________
(Corporate Seal) ___________________President
OPTIONEE:
_____________________________________(SEAL)
4
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, INC., S.S.B.
SEVERANCE PLAN
THIS IS THE SEVERANCE PLAN ("PLAN") OF HOME SAVINGS BANK OF ALBEMARLE,
INC., S.S.B. (THE "BANK"), A NORTH CAROLINA-CHARTERED SAVINGS BANK, WITH ITS
PRINCIPAL OFFICE IN ALBEMARLE, NORTH CAROLINA, ADOPTED BY THE BOARD OF DIRECTORS
OF THE BANK, TO BE EFFECTIVE ON THE DATE SET FORTH ON THE LAST PAGE HEREOF.
1. Purpose. The purpose of this Plan is to aid the Bank in attracting and
-------
retaining capable employees by providing the employees with the severance
benefits set forth herein in the event that there is a change in control of the
Bank. For purposes of this Plan, the term "Employee" means and includes all
non-officer employees of the Bank employed on a full time basis on the date of
consummation or occurrence of a "Change in Control" (as defined in Subparagraph
2(c) below), excluding any non-officer employee employed by the Bank on such
date pursuant to a written employment agreement or a written special termination
agreement between any such employee and the Bank. For purposes of this Plan,
the term "Officer" means and includes any person employed by the Bank as an
officer (as designated by the Board of Directors of the Bank) on a full time
basis on the date of consummation or occurrence of a "Change in Control" (as
defined in Subparagraph 2(c) below), excluding any officer employed by the Bank
on such date pursuant to a written employment agreement or a written special
termination agreement between any such officer and the Bank.
2. Severance Benefits.
------------------
(a) Officers and Employees shall be entitled to receive severance
benefits as follows:
(i) Officers: In the event (i) the Bank or its successor terminates
the employment of any Officer in connection with, or within
twenty-four (24) months after, a "Change in Control" (as defined
in Subparagraph (c) below), other than for "cause" (as defined in
Paragraph 3 below) or (ii) an Officer terminates his employment
following a Termination Event pursuant to Paragraph 2(b) below,
the Bank shall pay the Officer a severance benefit equal to the
greater of (A) an amount equal to two weeks' salary at the
Officer's existing salary rate at the time of termination
multiplied times the Officer's number of complete years of
service to the Bank or (B) the amount of one year's salary at the
Officer's annual salary rate at the time of termination. Such sum
shall be payable as provided in Subparagraph (e) below.
(ii) Employees: In the event (i) the Bank or its successor terminates
the employment of any Employee in connection with, or within
twenty-four (24) months after, a "Change in Control" (as defined
in Subparagraph (c) below), other than for "cause" (as defined in
Paragraph 3 below) or (ii) an Employee terminates his employment
following a Termination Event pursuant to Paragraph 2(b) below,
the Bank shall pay the Employee a severance benefit equal to the
greater of (A) an amount equal to two weeks' salary at the
Employee's existing salary rate at the time of termination
multiplied times the
<PAGE>
Employee's number of complete years of service to the Bank or (B) the amount of
one month's salary at the Employee's existing salary rate at the time of
termination; provided, however, that the severance benefit payable to the
Employee shall not exceed an amount equal to the annual salary payable to any
such Employee at his salary rate existing on the date of such termination.
Such sum shall be payable as provided in Subparagraph (e) below.
(b) Any Employee and any Officer shall have the right to terminate his or
her employment upon the occurrence of any of the following events (the
"Termination Events") within twenty-four (24) months following a
Change in Control:
(i) The Employee's or Officer's annual base salary rate is decreased
from the level existing at the effective time of the Change in
Control; or
(ii) The Employee or Officer is transferred to a location outside of
Stanly County, North Carolina.
A Termination Event shall be deemed to have occurred on the date such
action or event is implemented or takes effect.
(c) For the purposes of this Plan, the term "Change in Control" shall mean
any of the following events:
(i) a change in control of a nature that would be required to be
reported in response to Item 1 of the Current Report on Form 8-
K by the Bank or by any parent holding company of the Bank
pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 as in effect on the date hereof (the "Exchange Act");
or
(ii) such time as any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Bank or any
parent holding company of the Bank representing 25 percent or
more of the combined voting power of the outstanding capital
stock of the Bank or any parent holding company of the Bank; or
(iii) individuals who constitute the Board of Directors of the Bank
or any parent holding company of the Bank on the date hereof
(each, an "Incumbent Board") cease for any reason to constitute
at least a majority thereof, provided that any person becoming
a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors
comprising the Incumbent Board or whose nomination for election
by the shareholders of the Bank or any parent holding company
of the Bank was approved by the Board of Directors of the Bank
or any parent holding company of the Bank or any Nominating
Committee of any such Board, as applicable, shall be considered
as though he or she were a member of the Incumbent Board; or
2
<PAGE>
(iv) the Bank or any parent holding company of the Bank consolidates
or merges with or into another corporation, association or
entity or is otherwise reorganized, where the Bank or any
parent holding company of the Bank is not the surviving
corporation in such transaction; or
(v) all or substantially all of the assets of the Bank or any
parent holding company of the Bank are sold or otherwise
transferred to or are acquired by any other entity or group.
Notwithstanding the other provisions of this Paragraph 2(c), neither
(i) the conversion of the Bank from a mutual savings bank to a stock
savings bank ("Conversion") pursuant to the rules and regulations
regarding mutual to stock conversions, (ii) the acquisition of capital
stock of the Bank by a parent holding company formed by the Bank to
acquire the capital stock of the Bank issued in connection with a
Conversion (iii) the sale by such parent holding company of its
capital stock to the members of the Bank and the general public
pursuant to the rules and regulations regarding Conversions, or (iv)
any other event or transaction which the Board of Directors of the
Bank shall determine is not a Change in Control for purposes of its
Plan prior to the consummation or occurrence thereof, shall constitute
a Change in Control. In addition, a transaction or event shall not be
considered a Change in Control with respect to any Employee or Officer
benefitted hereby if, prior to the consummation or occurrence of such
transaction or event, such Employee or Officer and the Bank agree in
writing that the same shall not be treated as a Change in Control for
purposes of this Plan.
(d) Amounts payable pursuant to this Paragraph 2 shall be paid, at the
option of the Bank or any successor in one lump sum or in equal
monthly payments over a period not to exceed a number of months equal
to the Employee's or Officer's years of service with the Bank divided
by two.
(e) Following a Termination Event which gives rise to an Employee's or
Officer's rights hereunder, the Employee or Officer shall have six (6)
months from the date of occurrence of the Termination Event to
terminate his or her employment pursuant to this Paragraph 2. Any such
termination shall be deemed to have occurred only upon delivery to the
Bank (or to any successor corporation) of written notice of
termination which describes the Change in Control and Termination
Event. If an Employee or Officer does not so terminate his employment
within such six-month period, he or she shall thereafter have no
further rights hereunder with respect to that Termination Event, but
shall retain rights, if any, hereunder with respect to any other
Termination Event as to which such six month period has yet to expire.
3. Termination for "Cause." Termination for "cause" shall include
----------------------
termination because of the Employee's or Officer's personal dishonesty, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, or willful violation of any law, rule,
regulation (other than traffic violations or similar offenses) or final cease-
and-desist order.
3
<PAGE>
4. Effect on Other Benefits. The benefits payable to or owed to any
------------------------
Employee or Officer under this Plan shall not be reduced or otherwise affected
by the Employee's or Officer's receipt or entitlement to benefits under (i) any
agreement between the Employee or the Officer and the Bank or any parent holding
company of the Bank, or (ii) any other fringe benefit, compensation, or other
employee benefit plan of the Bank or any parent holding company of the Bank,
including, but not limited to, stock option plan, restricted stock agreements or
employee stock ownership plan. In addition, the benefits payable to or owed to
any Employee or Officer under any such fringe benefit, compensation or other
employee benefit plan of the Bank or any parent holding company of the Bank
shall not be reduced or otherwise affected by the Employee's or Officer's
receipt or entitlement to benefits under this Plan.
5. Binding Effect. This Plan shall be binding upon any corporate or other
--------------
successor of the Bank which shall acquire, directly or indirectly, by merger,
consolidation, purchase, or otherwise, all or substantially all of the assets of
the Bank.
6. Modification, Waiver, Amendments. Prior to the consummation or
--------------------------------
occurrence of a Change in Control, as defined herein, this Plan may be
terminated, modified or amended in any manner whatsoever, by resolution adopted
by the Bank's Board of Directors. Prior to the time of the consummation or
occurrence of any Change in Control, no Employee or Officer shall have any
vested rights pursuant to this Plan. After the consummation or occurrence of a
Change in Control, all Employees and Officers shall have vested rights pursuant
to this Plan, and this Plan may not be terminated or modified or amended in a
manner to reduce the benefits payable to any Employee or Officer, without the
written consent of such Employee or Officer.
7. Effect of Plan on Employees and Officers. This Plan shall not confer
----------------------------------------
upon any Employee or Officer of the Bank the right to continued employment with
the Bank or any successor to the Bank, nor shall it limit the right of the Bank
or any successor of the Bank to terminate the employment of any Employee or
Officer at any time, subject to the terms hereof.
8. Withholding. The Bank or any successor to the Bank shall have the
-----------
right to deduct or otherwise effect a withholding of any amount required by
federal or state laws to be withheld as a result of any payments required to be
made under this Plan.
9. Governing Law. Without regard to principles of conflicts of laws, the
-------------
laws of the State of North Carolina shall govern and control the validity,
interpretation, performance and enforcement of this Plan.
10. Inspection of Plan. A copy of this Plan, and any amendments thereto,
------------------
shall be maintained by the Secretary of the Bank and shall be shown to any
proper person making inquiry with respect thereto.
11. Waiver. Any Employee and Officer shall have the right to waive the
------
receipt of any benefits which would otherwise be payable to such Employee or
Officer pursuant to this Plan by executing a writing setting forth the terms of
such waiver.
4
<PAGE>
12. Excise Taxes. It is the intent of the parties hereto that all
------------
payments made pursuant to this Plan shall be deductible by the Bank for federal
income tax purposes and not result in the imposition of an excise tax on any
Employee or Officer. Notwithstanding anything contained in this Plan to the
contrary, any payments to be made to or for the benefit of any Employee or
Officer which are deemed to be "parachute payments," as such term is defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"),
shall be modified or reduced to the extent, but only to the extent, reasonably
deemed to be necessary by the Bank to avoid the imposition of excise taxes on
the Employee or Officer under Section 4999 of the Code or the disallowance of a
deduction to the Bank under Section 280G(a) of the Code.
Dated , 19 .
-------------- --
5
<PAGE>
Exhibit 23(a)
[LETTERHEAD OF MCGLADREY & PULLEN, LLP APPEARS HERE]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
We hereby consent to the use in this Registration Statement of South Street
Financial Corp. of our report dated October 25, 1995 relating to the statements
of financial condition of Home Savings Bank of Albemarle, S.S.B. as of September
30, 1995 and 1994, and the related statements of income, equity and cash flows
for each of the years in the three year period ended September 30, 1995 and to
the reference to our firm in the Registration Statement under the caption
"Experts".
/s/ McGladrey & Pullen, LLP
Charlotte, North Carolina
May 22, 1996
<PAGE>
[LETTERHEAD OF FERGUSON & CO., LLP APPEARS HERE]
Exhibit 23(c)
May 22, 1996
Board of Directors
Home Savings Bank of Albemarle, S. S. B.
155 West South Street
Albermarle, North Carolina 28002
Directors:
We hereby consent to the use of our firm's name in the applications for
conversion of Home Savings Bank of Albemarle, S.S.B., Albemarle, North Carolina
and any amendments thereto, filed with the Division of Savings Institutions,
North Carolina Department of Commerce (the "Division"), and the FDIC, in the
Form S-1 Registration Statement and any amendments thereto, and in the
Acquisition Application and the Holding Company Application for South Street
Financial Corp., as filed with the Division and the Federal Reserve Board,
respectively. We also hereby consent to the inclusion of, a summary of, and
references to our Appraisal Report and our opinion concerning subscription
rights in such filings including the Prospectus of South Street Financial
Corp.., and the Proxy Statement of Home Savings Bank of Albemarle, S.S.B.
Sincerely,
/s/ Charles M. Hebert
Charles M. Hebert
Principal
<PAGE>
Exhibit 99(a)
CONVERSION VALUATION REPORT
---------------------------
Valued as of April 30, 1996
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
Albemarle, North Carolina
Prepared By:
Ferguson & Co., LLP
Suite 550
122 W. John Carpenter Fwy.
Irving, TX 75039
214/869-1177
<PAGE>
[FERGUSON & CO., LLP LETTERHEAD
APPEARS HERE]
STATEMENT OF APPRAISER'S INDEPENDENCE
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
We are the appraiser for Home Savings Bank of Albemarle, S.S.B. ("Home
Savings" or "Bank") in connection with its mutual to stock conversion. We are
submitting our independent estimate of the pro forma market value of the Bank's
stock to be issued in the conversion. In connection with our appraisal of the
Bank's to-be-issued stock, we have received a fee which was not related to the
estimated final value. The estimated pro forma market value is solely the
opinion of our company and it was not unduly influenced by the Bank, its
conversion counsel, its selling agent, or any other party connected with the
conversion. We also received a fixed fee for assisting the Bank in connection
with the preparation of its business plan to be submitted with the conversion
application.
Home Savings has agreed to indemnify Ferguson & Co., LLP under certain
circumstances against liabilities arising out of our services. Specifically, we
are indemnified against liabilities arising from our appraisal, if the Bank
misrepresented or omitted material facts, except to the extent such liabilities
are determined to have arisen because of our negligence, failure to exercise due
diligence, or willful conduct.
Ferguson & Co., LLP
/s/ Charles M. Hebert
Charles M. Hebert
Principal
May 21, 1996
<PAGE>
[LETTERHEAD OF FERGUSON & CO., LLP
APPEARS HERE]
May 21, 1996
Board of Directors
Home Savings Bank of Albemarle, S.S.B.
155 West South Street
Albemarle, North Carolina
Gentlemen:
We have completed and hereby provide an independent appraisal of the
estimated pro forma market value of Home Savings Bank of Albemarle, S.S.B.,
Albemarle, North Carolina ("Home Savings" or "Bank"), in connection with the
conversion of Home Savings from the mutual to stock form of organization
("Conversion"). This appraisal report is furnished pursuant to the regulatory
filing of the Bank's applications for conversion with the Federal Deposit
Insurance Corporation ("FDIC") and the Savings Institutions Division of the
North Carolina Department of Commerce ("Division").
Ferguson & Co., LLP ("F&C") is a consulting firm that specializes in
providing financial, economic, and regulatory services to financial
institutions. The background and experience of F&C is presented in Exhibit I. We
believe that, except for the fees we will receive for preparing the appraisal
and assisting with Home Savings' business plan, we are independent. F&C
personnel are prohibited from owning stock in conversion clients for a period of
at least one year after conversion.
In preparing our appraisal, we have reviewed Home Savings' Notice of Intent
to Convert to Stock Form and Application to Convert a Mutual Savings Bank to a
Stock Owned Savings Bank, including the Proxy Statement, as filed with the FDIC
and the Division, respectively. We conducted an analysis of Home Savings that
included discussions with McGladrey & Pullen, LLP, the Bank's independent
auditors, and with Brooks, Pierce, Mc Lendon, Humphrey & Leonard, L.L.P., the
Bank's conversion counsel. In addition, where appropriate, we considered
information based on other available published sources that we believe is
reliable; however, we cannot guarantee the accuracy or completeness of such
information.
We also reviewed the economy in Home Savings' primary market area and
compared the Bank's financial condition and operating results with that of
selected publicly traded thrift institutions. We reviewed conditions in the
securities markets in general and in the market for thrifts stocks in
particular.
Our appraisal is based on Home Savings' representation that the information
contained in the applications for conversion and additional evidence furnished
to us by the Bank and its independent auditors are truthful, accurate, and
complete. We did not independently verify the financial statements and other
information provided by Home Savings and its auditors, nor did
<PAGE>
Board of Directors
May 21, 1996
Page 2
we independently value the assets or liabilities of the Bank. The valuation
considers Home Savings only as a going concern and should not be considered an
indication of its liquidation value.
It is our opinion that, as of April 30, 1996, the estimated pro forma
market value of Home Savings was $34,000,000, or 3,400,000 shares at $10.00 per
share. The resultant valuation range was $28,900,000 at the minimum (2,890,000
shares at $10.00 per share) to $39,100,000 at the maximum (3,910,000 shares at
$10.00 per share), based on a range of 15 percent below and above the midpoint
valuation. The supermaximum was $44,970,000 (4,497,000 shares at $10.00 per
share).
Our valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of common
stock in the conversion. Moreover, because such valuation is necessarily based
upon estimates and projections of a number of matters, all of which are subject
to change from time to time, no assurance can be given that persons who purchase
shares of common stock in the conversion will thereafter be able to sell such
shares at prices related to the foregoing estimate of the Bank's pro forma
market value. F&C is not a seller of securities within the meaning of any
federal or state securities laws and any report prepared by F&C shall not be
used as an offer or solicitation with respect to the purchase or sale of any
securities.
Our opinion is based on circumstances as of the date hereof, including
current conditions in the United States securities markets. Events occurring
after the date hereof, including, but not limited to, changes affecting the
United States securities markets and subsequent results of operations of Home
Savings, could materially affect the assumptions used in preparing this
appraisal.
The valuation reported herein will be updated as provided in the conversion
regulations and guidelines. Any updates will consider, among other things, any
developments or changes in Home Savings' financial performance and condition,
management policies, and current conditions in the equity markets for thrift
shares. Should any such new developments or changes be material, in our opinion,
to the valuation of the shares, appropriate adjustments will be made to the
estimated pro forma market value. The reasons for any such adjustments will be
explained in detail at the time.
Respectfully,
FERGUSON & CO., LLP
/s/ CHARLES M. HEBERT
Charles M. Hebert
Principal
<PAGE>
FERGUSON & CO., LLP
- -------------------
TABLE OF CONTENTS
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION I. - FINANCIAL CHARACTERISTICS 1
INTRODUCTION 1
PAST & PROJECTED ECONOMIC CONDITIONS 4
FINANCIAL CONDITION OF INSTITUTION 5
Balance Sheet Trends 5
Asset/Liability Management 7
Income and Expense Trends 10
Regulatory Capital Requirements 11
Ratios 12
Lending 14
Nonperforming Assets 21
Mortgage-Backed Securities and Investments 24
Savings Deposits 26
Borrowings 31
Subsidiaries 31
Legal Proceedings 31
EARNINGS CAPACITY OF THE INSTITUTION 31
Asset-Size-Efficiency of Asset Utilization 32
Projected Dividend Policy-Capacity to Pay 32
Intangible Values 33
Effect of Government Regulations 34
</TABLE>
i
<PAGE>
FERGUSON & CO., LLP
- -------------------
TABLE OF CONTENTS - CONTINUED
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION II - MARKET AREA 1
DEMOGRAPHICS 1
SECTION III - COMPARISON WITH PUBLICLY TRADED THRIFTS 1
COMPARATIVE DISCUSSION 1
Selection Criteria 1
Profitability 3
Balance Sheet Characteristics 4
Risk Factors 5
Summary of Financial Comparison 5
FUTURE PLANS 6
SECTION IV - CORRELATION OF MARKET VALUE 1
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED 1
Financial Aspects 1
Market Area 3
Management 3
Dividends 4
Liquidity 4
Thrift Equity Market Conditions 5
</TABLE>
ii
<PAGE>
FERGUSON & CO., L.L.P.
- ----------------------
TABLE OF CONTENTS - CONTINUED
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION IV - CORRELATION OF MARKET VALUE - continued
NORTH CAROLINA ACQUISITIONS 8
EFFECT OF INTEREST RATES ON THRIFT STOCK 10
Adjustments Conclusion 14
Valuation Approach 14
Valuation Conclusion 17
</TABLE>
iii
<PAGE>
FERGUSON & CO., L.L.P.
- ----------------------
LIST OF TABLES
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
<TABLE>
<CAPTION>
TABLE
NUMBER TABLE TITLE PAGE
- ------ ----------- ----
<C> <S> <C>
SECTION I - FINANCIAL CHARACTERISTICS
1 Selected Financial Data 6
2 Gap Report 9
3 Regulatory Capital Compliance 12
4 Selected Financial Rations and Other Data 13
5 Loan Portfolio Composition 15
6 Loan Portfolio - Contractual Maturities 16
7 Originations, Payments and Sales 17
8 Rate Yield Analysis 19
9 Rate/Volume Analysis 20
10 Nonperforming Assets 21
11 Loan Loss Allowance 22
12 Allocation of Loan Allowances 23
13 Investment Securities 25
14 Deposit Composition - Rates and Terms 27
15 Jumbo Certificates of Deposits 28
16 Deposits Flows 30
17 Buildings 34
SECTION II - MARKET AREA
1 Key Economic Indicators 2
2 Summary of Building Permits 7
3 Employment by Industry 8
4 Market Area Deposits 9
</TABLE>
iv
<PAGE>
FERGUSON & CO., L.L.P.
- ----------------------
LIST OF TABLES - continued
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
<TABLE>
<CAPTION>
TABLE
NUMBER TABLE TITLE PAGE
- ------ ----------- ----
<S> <C> <C>
SECTION III - COMPARISON WITH PUBLICLY
TRADED THRIFTS
1 Comparatives General 8
2 Key Financial Indicators 9
3 Pro Forma Comparisons 10
4 Comparative Selection 12
SECTION IV - CORRELATION OF MARKET VALUE
1 Appraisal Earnings 2
2 North Carolina Acquisitions 18
3 Recent Conversions 19
4 Adjustment Summary 14
5 Pricing Comparisons 16
SECTION
NUMBER FIGURE TITLE PAGE
------------ ----
II Figure II.1 - Population Trends 10
II Figure II.2 - Per Capita Income 11
II Figure II.3 - Household Trends 12
IV Figure IV.1 - SNL by Year 9
IV Figure IV.2 - SNL from 1/31/94 to Present 9
IV Figure IV.3 - Interest Rates 13
</TABLE>
v
<PAGE>
FERGUSON & CO., L.L.P.
- ----------------------
EXHIBITS
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
EXHIBIT TITLE
Exhibit I - Ferguson & Co., LLP. Qualifications
Exhibit II - Southeast Region Thrifts
Exhibit III - Home Savings Bank Financial Highlights
Exhibit IV - Comparative Group TAFS and BankSource Reports
Exhibit V - Publicly Traded Thrifts
Exhibit VI - Selected Publicly Held Thrifts
Exhibit VII - Audited Financial Statements
Exhibit VIII - Pro Forma Calculations
Pro Forma Effect of Conversion Proceeds at the Minimum of the Range
Pro Forma Effect of Conversion Proceeds at the Midpoint of the Range
Pro Forma Effect of Conversion Proceeds at the Maximum of the Range
Pro Forma Effect of Conversion Proceeds at the SuperMax of the Range
Pro Forma Analysis Sheet
Pro Forma Assumptions
vi
<PAGE>
SECTION I
FINANCIAL CHARACTERISTICS
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
INTRODUCTION
Home Savings Bank of Albemarle, S.S.B. ("Home Savings" or "Bank") is a
state chartered, federally insured mutual savings bank headquartered in
Albemarle (Stanley County), North Carolina. It was chartered in 1911, as Home
Savings and Loan Association. The Bank joined the FHLB system and obtained
federal insurance of accounts in 1954. In 1992, it converted from a savings and
loan association to a savings bank and changed its name to Home Savings Bank of
Albemarle, S.S.B. On May 14,1996, it adopted a plan to convert to a state stock
savings bank.
At March 31, 1996, Home Savings had total assets of $167.02 million,
deposits of $144.28 million, and net worth of $20.72 million, or 12.41% of
assets.
The Bank has two offices located in Stanley County, North Carolina. In
addition to the main office at 155 West South Street, Albemarle, North Carolina,
it has a branch office at 602 West Main Street in Locust, North Carolina. Locust
is located 15 miles west of Albemarle, and both cities are located in Stanley
County.
Home Savings is a traditional thrift although in recent years, as interest
rate risk management became a more significant factor, the composition of the
assets of the institution has drifted more towards a passive, investor type
operation. It invests primarily in 1-4 family loans, mortgage backed securities,
US Government and agency securities, and temporary cash investments. It is
funded by savings deposits and existing net worth. As of March 31, 1996, loans
were 68.89% of total assets, MBS were 2.99% and investment securities and
temporary cash investments were 25.86% of total assets.
1
<PAGE>
FERGUSON & CO., LLP Section I.
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The Bank offers a variety of loan products to accommodate its customer
base, but single family loans dominate its loan portfolio. In recent years, Home
Savings has taken a passive approach to managing interest rate risk. Management
has contended that high levels of capital and stable income will offset the
majority of interest risk. It has continued to originate fixed rate home loans,
but has generated some adjustable loan products. At March 31, 1996, fixed rate
first mortgage loans on 1-4 family dwellings made up 79.27% of the loan
portfolio. Total fixed rate loans were 90.17% of total loans. Investments
(including mortgage-backed securities) made up 28.85% of Home Savings' assets at
March 31, 1996.
Home Savings had nonperforming assets of $775 thousand, or .46% of assets
at March 31, 1996; $1.12 million, or .70% of assets at September 30, 1995; $1.12
million or .76% of assets at September 30, 1994; and $963 thousand or .61% of
assets at September 30, 1993. This historically low level of nonperforming
assets is indicative of the conservative lending philosophies of management and
the board.
Savings deposits increased $6.64 million, or 4.82% from September 30, 1995,
to March 31, 1996; from September 30, 1994 to September 30, 1995, deposits
increased $10.34 million or 8.12%; from September 30, 1993, to September 30,
1994, deposits decreased $12.37 million or 8.92%, which reversed a modest growth
trend from 1991 through 1993. Home Savings has not relied on FHLB borrowings to
supplement deposits during recent years. However, Management considers advances
as a viable alternative method of funding growth.
2
<PAGE>
FERGUSON & CO., LLP Section I.
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The Bank's capital to assets ratio has shown steady growth. Equity capital,
as a percentage of average assets, has increased from 7.39% at September 30,
1991; to 8.61% at September 30, 1992; to 10.45% at September 30, 1993; to 12.39%
at September 30, 1994; to 12.78% at September 30, 1995; and finally to 12.41% at
March 31, 1996. This capital growth was a result of consistent earnings combined
with slow and deliberate asset growth.
Home Savings' profitability, as measured by return on average assets, is
generally above its peer group average of banks filing Call Reports with the
FDIC, consisting of Banks with assets between $100 million and $300 million for
1992, 1993, 1994, and 1995. For the years ending September 30, 1992, 1993, and
1994, Home Savings ranked in the 81st, 90th, and 85th percentile, respectively,
in return on average assets, based on information derived from the BankSource
database published by Sheshunoff Information Services, Inc. However, in 1995,
profitability, as measured by return on average assets, dropped to 1.02%, which
was at the 33rd percentile. These statistics include commercial banks which are
generally more profitable than the thrifts (savings banks) included in that
database. The high level of performance, when compared to commercial banks,
speaks well for the Management of Home Federal and the control they exercise
over expenses.
3
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
I. FINANCIAL CHARACTERISTICS
PAST & PROJECTED ECONOMIC CONDITIONS
Thrifts are no longer being subjected to the negative publicity they were
receiving from the mid 1980's to the early 1990's. Asset quality of thrifts in
general has shown marked improvement, and with the exception of some regional
problems, the industry is no longer burdened with large amounts of problem
assets, and profit are impressive as an industry. The RTC has been terminated
for lack of need, further reducing the negative publicity directed to thrifts in
general.
Fluctuations have occurred within the time frames as a result of changing
temporary trends in interest rates and other economic factors. However, the
year-to-year results have been consistently upward as the general trends in the
thrift industry have been improving as interest rates declined. Interest rates
began a general upward movement during late 1993, suggesting a decline in
interest margins and profitability. The interest rate increases in the recent
past have caused investors to focus on the interest rate sensitivity of all
sectors of the financial services industry. The thrift industry has not escaped
that focus.
Rates have increased as the overall economy continued its recovery and
investors feared a return of inflationary pressure. The thrift industry
generally is better equipped to cope with changing interest rates than it was in
the past, and investors have recognized this change and have witnessed the
demonstrated ability of the thrift industry to maintain interest margins in
spite of rising interest rates. However, rate increases and the
4
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
shortening of the time elapsed between increases during 1994 placed pressure on
portfolio managers to shorten maturities, which negatively impacts the future
earnings of financial institutions. Recent increases in long and short term
interest rates have shown little effect on thrift performance, home
construction, and home sales, although such increases will eventually have an
impact on interest sensitive stocks, such as banks and thrifts.
In addition, a new issue discount arises from investor uncertainties about
the inherent risk in initial public offerings. This risk must be considered in
conversion pricing. New issue discounts tend to decline during periods of
increasing stock values and increase during periods of declining stock values.
FINANCIAL CONDITION OF INSTITUTION
Balance Sheet Trends
As Table I.1 shows, Home Savings experienced moderate growth during the
period of four years and six months ending March 31, 1996. Assets increased
$21.02 million, or 14.4% during the period. Loans decreased $9.96 million, or
8.54%. Investments and cash equivalents increased $24.70 million, or 133.34%,
from $18.52 million at September 30, 1991, to $43.22 million at March 31, 1996.
During the same period, savings deposits increased by $10.76 million, or 8.06%.
Retained earnings increased $9.93 million, or 92.10%.
5
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
<TABLE>
<CAPTION>
Table I.1 - Selected Financial Data
At At September 30,
March 31, -------------------------------------------------------------
1996 1995 1994 1993 1992 1991
--------------------- ---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Financial Condition Data:
Total assets $167,026 $159,863 $147,837 $157,909 $153,370 $146,003
Investment securities (1) 43,220 40,942 30,275 27,307 26,903 18,522
Loans receivable, net 106,710 108,597 106,844 117,055 113,116 116,669
Mortgage-backed securities 5,987 4,529 5,325 7,076 8,175 5,753
Deposits 144,282 137,647 127,312 139,685 138,753 133,524
Equity 20,720 20,426 18,311 16,503 13,199 10,786
<CAPTION>
Six Months Ended Year Ended
March 31, September 30,
----------------------------- --------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
--------------- ------------ --------- ---------- ---------- ---------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Interest income $ 6,351 $ 5,831 $ 11,980 $ 11,994 $ 13,044 $ 13,792 $ 13,350
Interest expense 3,831 2,532 5,980 4,973 6,037 8,042 9,110
Net interest income 2,520 3,299 6,000 7,021 7,007 5,750 4,240
Provision for loan losses 300 - - - - - 100
Net interest income after provision
for loan losses 2,220 3,299 6,000 7,021 7,007 5,750 4,140
Other income 62 61 126 147 206 233 188
Non-interest expense:
Compensation and employee 898 724 1,859 1,324 1,018 1,059 989
benefits
Other 896 684 1,351 1,833 1,126 1,296 1,167
Total noninterest expense 1,794 1,408 3,210 3,157 2,144 2,355 2,156
Income before income taxes 488 1,952 2,916 4,011 5,069 3,628 2,172
Income tax expense 189 729 1,055 1,498 1,765 1,215 798
Income before cumulative effect of a
change in accounting principle 299 1,223 1,861 2,513 3,304 2,413 1,374
Cumulative effect on prior years of
changing to a different method of - - - 485 - - -
accounting for income taxes
Net income $ 299 $ 1,223 $ 1,861 $ 2,028 $ 3,304 $ 2,413 $ 1,374
</TABLE>
(1) Includes interest-bearing deposits, Federal Home Loan Bank stock, and
investment securities.
Source: Offering Circular
6
<PAGE>
FERGUSON & CO., LLP Section I
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Asset/Liability Management
Managing interest rate risk is a major component of the strategy used in
operating a thrift. Most of a thrifts interest earning assets are long-term,
while most of the interest bearing liabilities have short to intermediate terms
to contractual maturity. To compensate, asset/liability management techniques
include: (1) making long term loans with interest rates that adjust to market
periodically, (2) investing in assets with shorter terms to maturity, (3)
lengthening the terms to maturities of savings deposits, and (4) seeking to
employ any combination of the aforementioned techniques artificially through the
use of synthetic hedge instruments. Table I.2 shows the sensitivity of Home
Savings interest earning assets as compared to interest bearing liabilities. It
shows that, within three months of March 31, 1996, interest earning assets
maturing or repricing are $22.55 million. and interest bearing liabilities
maturing within that same time period are $51.93 million producing a negative
gap position of $29.37 million or a negative 18.79% of interest earning assets.
In the period of more than three months to one year following March 31, 1996, an
additional $45.78 million in liabilities reprice, offset by $10.15 million in
assets that will reprice. This creates a negative repricing of IBL's over IEAs
of another $35.64 million. This $35.64 million, added to the negative $29.37
million of the first period, equates to $65.01 million more in liabilities
repricing than assets repricing. This is a 41.58% negative gap as a percentage
of earning assets in the first year. In the period or more than one year to
three years there is an additional repricing imbalance of $22.13 million,
bringing the negative gap to $87.14 at the end of three years. This equates to
a negative gap of 55.73%
7
<PAGE>
FERGUSON & CO., LLP Section I
- ------------------- ---------
of all interest earning assets. Clearly such a large negative gap subjects the
institution to an inordinate amount of risk from rising rates. Hopefully, a
significant portion of any additional capital that is infused into the
institution via the conversion will be used to acquire assets that will help
mitigate the extreme risk from rate increases.
8
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
<TABLE>
<CAPTION>
Table I.2 - GAP Report
At March 31,1996
---------------------------------------------------------------------
Less than More than More than More than
3 3 Months to 1 Year to 3 Years to
Months 1 Year 3 Years 5 Years
----------- ------------ ------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Interest-earning assets: (1)
Loans Receivable:
Adjustable rate 1-4 family residential $ 3,704 $ 4,046 $ 377 $ -
Fixed rate 1-4 family residential 404 1,265 3,798 4,506
Other adjustable rate real estate loans 270 298 22 -
Other fixed rate real estate loans 65 204 611 724
Other loans 121 146 27 -
----------- -------- -------- --------
Total loans 4,564 5,959 4,835 5,230
Interest-bearing deposits 11,931 - - -
Investment securities
Available for sale 6,004 4,017 18,899 1,008
Nonmarketable equity securities - - - -
Mortgage-backed securities (2) 55 171 510 598
----------- -------- -------- --------
Total interest-earning assets $ 22,554 $ 10,147 $ 24,244 $ 6,836
Interest-bearing liabilities:
Deposits:
Certificates of deposit $ 21,573 $ 45,783 $ 46,372 $ -
Money market deposit accounts 7,529 - - -
NOW and commercial checking accounts 7,433 - - -
Passbook savings 15,390 - - -
----------- -------- -------- --------
Total deposits $ 51,925 $ 45,783 $ 46,372 $ -
=========== ======== ======== ========
Total interest-bearing liabilities $ 51,925 $ 45,783 $ 46,372 $ -
=========== ======== ======== ========
Interest sensitivity gap per report (29,371) (35,636) (22,128) 6,836
Cumulative interest sensitivity gap (29,371) (65,007) (87,135) (80,299)
Cumulative gap as a percentage of
total interest-earning assets -18.79% -41.58% -55.73% -51.36%
Cumulative interest-earning assets as a
percentage of interest-bearing liabilities 43.44% 33.47% 39.52% 44.27%
<CAPTION>
Table I.2 - GAP Report
At March 31,1996
---------------------------------------------------------------------
More than
5 Years to More than
10 years 10 Years Total
------------- ------------- -------------
(Dollars in Thousands)
<S> <C> <C> <C>
Interest-earning assets: (1)
Loans Receivable:
Adjustable rate 1-4 family residential $ - $ - $ 8,127
Fixed rate 1-4 family residential 15,286 59,333 84,592
Other adjustable rate real estate loans - - 590
Other fixed rate real estate loans 2,452 9,478 13,534
Other loans - - 294
----------- --------- ---------
Total loans 17,738 68,811 107,137
Interest-bearing deposits - - 11,931
Investment securities -
Available for sale - - 29,928
Nonmarketable equity securities - 1,361 1,361
Mortgage-backed securities (2) 1,856 2,797 5,987
----------- -------- ---------
Total interest-earning assets $ 19,594 $ 72,969 $ 156,344
Interest-bearing liabilities:
Deposits:
Certificates of deposit $ - $ - $ 113,728
Money market deposit accounts - - 7,529
NOW and commercial checking accounts - - 7,433
Passbook savings - - 15,390
----------- --------- ---------
Total deposits $ - $ - $ 144,080
----------- --------- ---------
Total interest-bearing liabilities $ - $ - $ 144,080
=========== --------- ---------
Interest sensitivity gap per report 6,836 19,594 72,969
Cumulative interest sensitivity gap (80,299) (60,705) 12,264
Cumulative gap as a percentage of
total interest-earning assets -51.36% -38.83% 7.84%
Cumulative interest-earning assets as a
percentage of interest-bearing liabilities 44.27% 57.87% 108.51%
</TABLE>
(1) Interest-earning assets are included in the period in which the balances
are expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments and contractual maturities.
Source: Offering Circular
9
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FERGUSON & CO., LLP Section I.
- ------------------- ----------
Income and Expense Trends
As shown in Table I.1, Home Savings has been profitable for the entire
period of five fiscal years and six months ending March 31, 1996. Fluctuations
in income over the period have resulted principally from variances in spread,
with the Bank performing better in periods of low interest rates. Table I.9
analyzes the impact of rates and volumes on income. This table shows that rates
have had more influence on income than volumes, principally because in periods
of low rates, the institution has been able to control its cost of funds. This
confirms the tendency of the Bank to perform better in time of low interest
rates. Further confirmation of this earnings tendency is in Table I.2, which
shows the negative gap position of the institution.
Noninterest income levels, after reaching a high in 1992, have shown a
slight downward trend through March 31, 1996. In September 1992, noninterest
income was $233 thousand. It declined to $126 thousand in 1995. The six months
operations ending March 31, 1996, shows noninterest income to be $62 thousand,
which would annualize to a number comparable to September 30, 1995.
Operating expenses (see Table I.1), as a percentage of assets, have grown
only nominally, and have consistently been well controlled. According to
information in BankSource, a product of Sheshunoff Information Services, Inc.,
Home Savings was in the 99th percentile in 1992 and 1993, in the 90th percentile
in 1994, and in the 91st percentile in 1995 of their peer group in relation to
operating expenses.
10
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Home Savings adopted the requirements of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," effective October 1, 1993,
and, accordingly, recomputed its deferred tax assets and liabilities using the
liability method. Previously, deferred income taxes were determined using the
deferred method. The effect of this change on net income for the year ended
September 30, 1994, was not material.
The Bank adopted SFAS 115 September 30, 1994. The new accounting standard
results in adjusting certain investment securities to market value. Under SFAS
115, securities must be classified as either held in trading accounts, available
for sale, or strictly to be held to maturity. The SFAS has little effect on
Home Savings. The September 30, 1994, equity was decreased by $220 thousand net
of $114 thousand related deferred tax effect, to recognize the net unrealized
holding loss on securities available for sale at that date. Management is not
aware of any accounting standard changes affecting Home Savings that have not
been adopted.
Regulatory Capital Requirements
As Table I.4 demonstrates, Home Savings meets all regulatory capital
requirements, and meets the regulatory definition of a "Well Capitalized"
institution. Moreover, the additional capital raised in the stock conversion
will add to the existing capital cushion.
11
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FEGUSON & CO., LLP Section I
- ------------------ ---------
Table I.3 - Regulatory Capital Compliance at March 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Amount Percent
- --------------------------------------------------------------------------------
<S> <C> <C>
GAAP Capital $20,720 12.41%
Tier 1 (Leverage) Capital:
Capital level 20,691 12.39%
Requirement 6,679 4.00%
------- -----
Excess 14,012 8.39%
Tier 1 Risk Adjusted Capital:
Capital level 20,691 30.36%
Requirement 2,726 4.00%
------- -----
Excess 17,965 26.36%
Total Risk Based Capital:
Capital level 21,118 30.99%
Requirement 5,452 8.00%
------- -----
Excess 15,666 22.99%
- --------------------------------------------------------------------------------
Source: Offering Circular
- --------------------------------------------------------------------------------
</TABLE>
Ratios
Table I.4 provides various ratios regarding Home Savings' assets and
operations. The ratios depict the following: 1) consistently high return on
assets, except for the six months ending March 31, 1996, and that period was
subjected to additional expenses taken in anticipation of conversion; 2) return
on equity rising to a peak in 1993 at 22.25%, then declining to 9.5% in 1995;
3) increasing capital ratios; 4) fluctuating interest rate spread (reflecting
the Bank's interest rate sensitivity); 5) low, reasonable level of non-
performing assets; and 6) controlled operating expenses.
12
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FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.4 - Selected Financial Ratios and Other Data
<TABLE>
<CAPTION>
At or For the
Six Months
Ended
March 31, At or For the Year Ended September 30,
----------------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- ---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Other Data: (1)
Return on average assets (3) 0.36% 1.67% 1.23% 1.31% 2.12% 1.61% 1.01%
Return on average equity (3) 2.87% 12.87% 9.50% 11.47% 22.25% 20.12% 13.61%
Average equity to average assets 12.72% 1 2.98% 12.97% 11.45% 9.54% 8.01% 7.39%
Retained earnings to end-of-period assets 12.39% 10.65% 12.76% 12.53% 10.45% 8.61% 7.39%
Interest rate spread for period 2.61% 4.19% 3.59% 4.38% 4.21% 3.56% 2.72%
Average interest-earning assets to
to average interest-bearing liabilities 112.09% 112.59% 112.59% 110.17% 107.55% 106.90% 106.97%
Net interest margin 3.19% 4.67% 4.11% 4.72% 4.61% 3.95% 3.21%
Non-performing assets to total assets
at period end (2) 0.46% 0.64% 0.70% 0.76% 0.61% 0.05% 0.13%
Non-performing loans to total loans
at period end 0.64% 0.72% 0.87% 0.85% 0.70%
Loan loss reserves to non-performing
loans at period end 60.83% 17.39% 13.97% 14.80% 17.06%
Net interest income, after provision for
loan losses to non-interest expense 123.75% 234.30% 186.92% 222.39% 326.82% 244.16% 192.02%
Non-interest expense to average assets 2.18% 1.92% 2.12% 2.05% 1.38% 1.57% 1.58%
Deposit accounts 15,828 15,314 17,988 17,152 18,416 15,394 15,736
Loan accounts 3,363 3,556 3,316 3,433 3,734 3,201 3,377
Number of full service banking offices 2 2 2 2 2 2 2
- ----------------------------------------------------
</TABLE>
(1) Ratios other than period-end ratios are based on average monthly balances.
(2) Non-performing assets include mortgage loans and consumer/commercial loans
90 days or more delinquent, and real estate acquired in settlement of
loans.
(3) Annualized for the six months ended March 31, 1996 and 1995.
Source: Offering Circular
13
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FERGUSON & CO., LLP Section I.
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Lending
Table I.5 provides an analysis of the Bank's loan portfolio by type of loan
and type of security. This analysis shows that, from September, 1991, through
March 31, 1996, Home Savings' loan composition has consistently emphasized 1-4
family dwelling loans. In each of the years displayed, one-to-four-family loans
were in excess of 85% of the total loan portfolio. In addition, during the same
period, construction loans, which are principally 1-4 residential units, ranged
between 3.82% and 6.08% of the portfolio. This conservative lending philosophy
has served to reduce to nominal levels the credit risk in the portfolio.
14
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FERGUSON & CO., LLP
- -------------------
<TABLE>
<CAPTION>
Table I.5 - Portfolio Composition
At September 30,
---------------------------------------------------------------------
1995 1994 1993
----------------------- ------------------- -----------------------
% of % of % of
Amount Total Amount Total Amount Total
------------ --------- --------- -------- ---------- ----------
(Dollars in Thousands)
Real estate loans:
Residential 1-4 family $ 91,254 90.42% $ 88,747 89.72% $ 98,135 89.38%
Residential multi-family 840 0.83% 870 0.88% 730 0.66%
Nonresidential real estate 3,013 2.99% 3,157 3.19% 3,655 3.33%
Residential construction 5,368 5.32% 6,015 6.08% 6,644 6.05%
Line of credit 3,875 3.84% 4,056 4.10% 3,715 3.38%
--------- ------ -------- ------ -------- ------
Total real estate loans 104,350 103.40% 102,845 103.97% 112,879 102.81%
Consumer loans:
Passbook or certificate 110 0.11% 105 0.11% 102 0.09%
Automobile - - - - - -
Other 217 0.22% 174 0.18% 291 0.27%
--------- ------ -------- ------ -------- ------
Total consumer loans 327 0.32% 279 0.28% 393 0.36%
Less:
Unearned fees and discounts 519 0.51% 465 0.47% 440 0.40%
Loans in process 3,100 3.07% 3,602 3.64% 2,895 2.64%
Allowance for loan losses 137 0.14% 140 0.14% 144 0.13%
--------- ------ -------- ------ -------- ------
Total reductions 3,756 3.72% 4,207 4.25% 3,479 3.17%
--------- ------ -------- ------ -------- ------
Total loans receivable, net $100,921 100.00% $ 98,917 100.00% $109,793 100.00%
========= ====== ======== ====== ======== ======
Source: Offering Circular
<CAPTION>
Section I.
----------
-------------------------------------------
1992 1991
----------------------- ------------------
% of % of
Amount Total Amount Total
------------ --------- --------- -------
<S> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $ 96,452 85.28% $103,982 89.13%
Residential multi-family 763 0.67% 707 0.61%
Nonresidential real estate 9,793 8.66% 9,745 8.35%
Residential construction 5,919 5.23% 4,458 3.82%
Line of credit 3,358 2.97% - -
-------- ------ -------- ------
Total real estate loans 116,285 102.82% 118,892 101.91%
Consumer loans:
Passbook or certificate 274 0.24% 309 0.26%
Automobile - - - -
Other 88 0.08% 91 0.08%
-------- ------ -------- ------
Total consumer loans 362 0.32% 400 0.34%
Less:
Unearned fees and discounts 306 0.27% 316 0.27%
Loans in process 3,096 2.74% 2,130 1.83%
Allowance for loan losses 144 0.13% 177 0.15%
-------- ------ -------- ------
Total reductions 3,546 3.14% 2,623 2.25%
-------- ------ -------- ------
Total loans receivable, net $113,101 100.00% $116,669 100.00%
======== ====== ======== ======
Source: Offering Circular
</TABLE>
15
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FERGUSON & CO., LLP Section I.
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Table I.6 provides maturity information relative to loans. This table shows
that most loans are long term, thereby emphasizing the importance of adjustable
rate loans.
<TABLE>
<CAPTION>
Table I.6 - Loan Portfolio -Contractual Maturities
At March 31, 1996
------------------------------------------------------------------------------------
Over 1 Over 3 Over 5
1 Year Year to Years to Years to Over 10
Or Less 3 Years 5 Years 10 Years Years Total
--------- ---------- ------------ ------------ ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage Ins.:
Adjustable rate 1-4 family
residential $ 7,750 $ 377 $ - $ - $ $ 8,127
Fixed rate 1-4 family
residential 1,669 3,798 4,506 15,286 59,333 84,592
Other adjustable rate real
estate loans 568 22 - - - 590
Other fixed rate real estate
loans 269 611 724 2,452 9,478 13,534
Other loans 267 27 - - - 294
Less
Allowance for loan losses (427) - - - - (427)
--------- --------- --------- --------- --------- ----------
$ 10,096 $ 4,835 $ 5,230 $ 17,738 $ 68,811 $ 106,710
========= ========= ========= ========= ========= ==========
Source: Offering Circular
</TABLE>
Table I.7 provides information with respect to loan originations and
repayments. It shows that the largest component of loan originations is on 1-4
family units and construction loans which are mainly 1-4 residential units. The
Bank has made only limited progress in diversifying the portfolio.
16
<PAGE>
FERGUSON & CO., LLP Section 1
- ------------------- ---------
<TABLE>
<CAPTION>
Table I.7 - Originations, Payments and Sales
Six Months Ended March Year Ended September 30,
31,
------------------------------- ----------------------------------
1996 1995 1995 1994 1993
------------- ----------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans receivable, net, beginning
of period $ 108,597 $ 106,844 $ 106,844 $ 117,055 $ 113,116
------------- ----------- --------- --------- ---------
Loan originations:
Residential 1-4 family 5,499 8,530 10,190 12,777 19,377
Residential multifamily - 58 58 - -
Nonresidential real estate - 272 33 308 625
Residential construction 3,149 6,282 6,282 6,273 7,144
Line of credit 234 323 626 931 1,736
Consumer 190 67 454 329 407
------------- ----------- --------- --------- ---------
Total loan originations 9,072 15,532 17,943 20,618 29,289
Loans purchased - - - - -
Principal repayments (10,745) (12,756) (16,192) (30,796) (25,503)
Other changes, net (1) (214) (10) 2 (33) 153
------------- ----------- --------- --------- ---------
Increase in loans receivable (1,887) (2,766) 1,753 (10,211) 3,939
------------- ----------- --------- --------- ---------
Loans receivable, net, end of period $ 106,710 $ 109,610 $ 108,597 $106,844 $ 117,055
============= =========== ========= ========= =========
</TABLE>
(1) Includes changes in deferred loan fees and allowance for loan losses.
Interest rates earned on loans, as shown in Table I.8, have fluctuated as
follows: March 31, 1996--8.60%; September 30, 1995--8.95%; September 30, 1994--
9.02%; and September 30, 1993--9.29%. Interest rates earned on investments
declined from 6.53% in 1993 to 5.49% in 1994, then increased slightly to 5.61%
by the end of fiscal year 1995. Rates on investments have further increased in
the six month period ending March 31, 1996. In addition to the changes in the
interest rates, there were changes in the asset mix of the Bank (more emphasis
on investments). In 1993, investments were $20.44 million or 13.13%
17
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
of total assets. My March 31, 1996, investments were $31.34 million or 19.12% of
total assets.
Interest rates paid on interest bearing liabilities declined from 1993 to
1994, 4.36% to 3.68%, and increased from 1994 to 1995, 3.68% to 4.61%. From 1995
to March 31,1995, the change was from 4.61% to 5.40%. Home Savings' spread was
4.21% in 1993, 4.72% in 1994, 4.11% in 1995, and 3.19% at March 31, 1996. The
spread changing along with rate is indicative of the interest rate sensitivity
that permeates the asset portfolio.
Table I.8 also provides average balances of assets and liabilities for the
six month periods ending March 31, 1995, and 1996, and for the years ending
September 30, 1994, 1993, and 1992. This table also provides insight into the
utilization of assets within the balance sheet. In 1993, the ratio of Interest
Earning Assets (IEA) to Interest Bearing Liabilities (IBL) was 109.77%. In 1994,
1995, and March 30, 1996, it was 110.19%, 112.74%, and 111.98%, respectively.
Such low levels of IEA's to IBL's will place them in the lower quartile of their
peer group, according to Sheshunoff Information Services.
18
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table 1.8-Rate Yield Analysis
<TABLE>
<CAPTION>
At March 31, Six Months Ended March 31, Year Ended September 30,
---------------------------------------------------------- -------------------------------
1996 1996 1995 1995
----------- ----------------------------- ---------------------------- -------------------------------
Average Average Average Average
Yield/ Average Yield/ Average Yield/ Average Yield/
Rate Balance Interest Rate(4) Balance Interest Rate(4) Balance Interest Rate
----------- ----------- --------- ------- ---------- ----------------- ----------- ------ --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest bearing deposits 5.35% $ 13,156 $ 373 5.67% 1,779 $ 68 7.64% $ 4,283 $ 270 6.30%
Investments (1) 5.72% 31,364 938 5.98% 26,833 736 5.49% 28,250 1,585 5.61%
Mortgage-backed securities 7.71% 5,174 196 7.58% 5,023 204 8.12% 4,842 394 8.14%
Loans receivable, net 8.60% 108,075 4,844 8.96% 108,182 4,823 8.92% 108,755 9,731 8.95%
----------- --------- ---------- --------- ----------- ----------
Total interest-earning assets 7.78% $ 157,769 $ 6,351 8.05% $ 141,817 $ 5,831 8.22% $ 146,130 $ 11,980 8.20%
--------- --------- ----------
Non-interest-earning assets 6,136 4,610 5,004
----------- ---------- -----------
Total $ 163,905 $ 146,427 $ 151,134
=========== ========== ===========
Liabilities and retained earnings:
Interest-bearing liabilities:
Passbook savings 3.00% $ 15,275 $ 231 3.02% $ 16,805 $ 255 3.03% $ 16,261 $ 463 2.85%
NOW and money market 2.63% 14,769 214 2.90% 17,183 270 3.14% 15,975 496 3.10%
Certificates of deposit 6.86% 110,852 3,386 6.11% 91,611 2,007 4.38% 97,382 5,021 5.16%
----------- --------- ---------- --------- ----------- ----------
Total interest-bearing liabilities 5.40% $ 140,896 $ 3,831 5.44% $ 125,599 $ 2,532 4.03% $ 129,618 $ 5,980 4.61%
--------- --------- ----------
Non-interest-bearing liabilities 2,167 1,829 1,918
Equity 20,842 18,999 19,598
----------- ---------- -----------
Total $ 163,905 $ 146,427 $ 151,134
=========== ========== ===========
Net interest income and interest
rate spread (2) 2.38% $ 2,520 2.61% $ 3,299 4.19% $ 6,000 3.59%
========= ========= ==========
Net yield on interest-
earning assets (3) 3.19% 3.19% 4.65% 4.11%
Ratio of interest-earning assets
to interest-bearing liabilities 111.98% 112.91% 112.74%
</TABLE>
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------------------------------------
1994 1993
---------------------------- -------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
---------- --------- ------- ----------- ---------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest earning assets:
Interest bearing deposits 10,675 $ 397 3.72% $ 7,038 $ 197 2.80%
Investments (1) 22,239 1,222 5.49% 20,435 1,334 6.53%
Mortgage-backed securities 5,999 469 7.82% 7,626 636 8.34%
Loans receivable, net 109,816 9,906 9.02% 117,055 10,877 9.29%
---------- --------- ----------- ----------
Total interest-earning assets $ 148,729 $ 11,994 8.06% $ 152,154 $ 13,044 8.57%
--------- ----------
Non-interest-earning assets 5,626 3,486
---------- -----------
Total $ 154,355 $ 155,640
========== ===========
Liabilities and retained earnings:
Interest-bearing liabilities:
Passbook savings $ 18,504 $ 544 2.94% $ 17,063 $ 538 3.15%
NOW and money market 18,909 579 3.06% 15,699 545 3.47%
Certificates of deposit 97,559 3,850 3.95% 105,853 4,954 4.68%
---------- --------- ----------- ----------
Total interest-bearing liabilities $ 134,972 $ 4,973 3.68% $ 138,615 $ 6,037 4.36%
--------- ----------
Non-interest-bearing liabilities 1,705 2,174
Equity 17,678 14,851
---------- -----------
Total $ 154,355 $ 155,640
========== ===========
Net interest income and interest
rate spread (2) $ 7,021 4.38% $ 7,007 4.21%
========= ==========
Net yield on interest-
earning assets (3) 4.72% 4.61%
Ratio of interest-earning assets
to interest-bearing liabilities 110.19% 110%
</TABLE>
------------------------------
(1) Includes investment securities and FHLB of Atlanta common stock.
(2) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income divided
by average interest-earning assets.
(4) Average yield/rate for the six months ended March 31, 1996 and 1995 have
been annualized.
(5) Loans placed on nonaccrual status have been included in
the computation of average balances.
19
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
<TABLE>
<CAPTION>
Table I.9 - Rate Volume Analysis
Six Months Ended March 31, Year Ended September 30,
1996 vs. 1995 1995 vs. 1994
Increase (Decrease) Attributable to Increase (Decrease) Attributable to
------------------------------------------------- ------------------------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
---------- ------------ ------------ ------------ ------------- ------------ ------------ --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income on:
Interest-bearing deposits $ 565 $ (114) $ (146) $ 305 $ (237) $276.0 $ (166) $ (127)
Investments, at cost 76 121 5 202 330 26 7 363
Mortgage-backed securities 12 (19) (1) (8) (90) 19 (4) (75)
Loans receivable (6) 27 (0) 21 (96) (80) 1 (175)
---------- ----------- ---------- --------- --------- -------- -------- --------
Total interest income on
interest-earning assets 647 15 (142) 520 (93) 241 (162) (14)
---------- ----------- ---------- --------- --------- -------- -------- --------
Interest expense on:
Passbook savings (21) (2) - (23) (64) 1 (0) (63)
NOW and money market (20) (37) 2 (55) (90) 8 (1) (83)
Certificates of deposit 704 598 75 1,377 (7) 1,162 (2) 1,153
---------- ----------- ---------- --------- --------- -------- -------- --------
Total interest expense on
interest-bearing liabilities 663 559 77 1,299 (161) 1,171 (3) 1,007
---------- ----------- ---------- --------- --------- -------- -------- --------
Increase (decrease) in net
interest income $ (16) $ (544) $ (219) $ (779) $ 68 $ (930) $ (159) $(1,021)
========== =========== ========== ========= ========= ======== ======== ========
<CAPTION>
Year Ended September 30,
1994 vs. 1993
Increase (Decrease) Attributable to
------------------------------------------------------
Rate/
Volume Rate Volume Net
----------- -------------- ---------------- ----------
<S> <C> <C> <C> <C>
Interest income on:
Interest-bearing deposits $ 118 $ 51 $ 31 $ 200
Investments, at cost 118 (211) (19) (112)
Mortgage-backed securities (136) (40) 9 (167)
Loans receivable (498) (496) 23 (971)
------- ---------- ----------- ----------
Total interest income on
interest-earning assets (398) (696) 44 (1,050)
------- ---------- ----------- ----------
Interest expense on:
Passbook savings 44 (39) (3) 2
NOW and money market 111 (64) (13) 34
Certificates of deposit (388) (773) 61 (1,100)
------- ---------- ----------- ----------
Total interest expense on
interest-bearing liabilities (233) (876) 45 (1,064)
------- ---------- ----------- ----------
Increase (decrease) in net
interest income $ (165) $ 180 $ (1) $ 14
======= ========== =========== ==========
</TABLE>
Source: Offering Circular
20
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.9 provides a rate volume analysis, measuring the effect on yields
that rates and volumes exert. Analysis will show that rates and volumes exercise
about equal influence on the interest expense of the Bank.
Nonperforming Assets
As shown in Table I.10, Home Savings' total nonaccrual loans as of March
31, 1996, were only $775 thousand and represented only .64% of gross loans and
0.46% of total assets. As of that date, all loans delinquent over 90 days
totaled $702 thousand and are unlikely to pose any significant threat to the
Bank's capital.
<TABLE>
<CAPTION>
Table I.10 - Nonperforming Assets
At March At September 30,
31, -------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- ------------ ----------- ---------- ----------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total nonaccrual loans:
Mortgage loans delinquent 90 days or more $ 614 $ 923 $ 910 $ 762 $ - $ -
Consumer loans delinquent 90 days or more 88 58 36 82 - -
Real estate owned 73 135 176 119 81 196
--------- --------- --------- --------- --------- ---------
Total non-performing assets $ 775 $ 1,116 $ 1,122 $ 963 $ 81 $ 196
Non-performing loans to total gross loans 0.64% 0.87% 0.85% 0.70%
Non-performing assets to total assets 0.46% 0.70% 0.76% 0.61% 0.05% 0.13%
Total assets $ $ $ $ $ $
$167,026 $159,863 $147,837 $157,909 $153,370 $146,003
========= ========= ========= ========= ========= =========
Total gross loans $110,479 $112,353 $111,051 $120,534 $116,662 $119,292
========= ========= ========= ========= ========= =========
</TABLE>
Source: Offering Circular
Table I.10 also provides information on real estate owned, which ranged
from a high of $196 thousand at September 30, 1991, to $73 thousand at March 31,
1996. The conservative composition of the loan portfolio, which is mainly 1-4
residential loans, does not produce many parcels of OREO and is also unlikely to
produce significant losses on OREO.
21
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FERGUSON & CO., LLP Section I.
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Table I.11 indicates that for the period ending March 31, 1996, Home
Savings has maintained a loan loss allowance ranging around $140 thousand for
the last five years. In the March 31, 1996 quarter, that reserve for loan and
lease losses was increased by $300 thousand. The amount allocated to provisions
for loan losses was determined by peer averaging, not in anticipation of
additional losses and it is certainly not indicative of historical losses.
<TABLE>
<CAPTION>
Table I.11 - LOAN LOSS ALLOWANCE
Six Months Ended Year Ended
March 31, September 30,
------------------------- --------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------------ ------------ ---------- ------------ ----------- ------------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, beginning of period $ 137 $ 144 $ 140 $ 144 $ 144 $ 177 $ 103
Provision for loan losses 300 - - - - 100
Charge-offs: - (7) (3) (4) (1) (33) (26)
Recoveries - - - - 1 - -
------------ ------------ ---------- ------------ ----------- ------------- ------------
Balance, end of period $ 437 $ 137 $ 137 $ 140 $ 144 $ 144 $ 177
============ ============ ========== ============ =========== ============= ============
Net charge-offs as a % of average
loans outstanding - 0.006% 0.003% 0.004% - 0.029% 0.023%
Allowance at period end as a %
of nonperforming loans 62.25% 17.36% 13.97% 14.80% 17.06% - -
</TABLE>
Source: Offering Circular
Table I.12 provides an analysis of the allocation of Home Savings' loan
loss allowance. Conforming to portfolio composition, the majority is allocated
to 1-4 residential loans.
22
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
<TABLE>
<CAPTION>
Table I.12 - Allocation of Loan Allowances
At September 30,
At March 31, ------------------------------------------------
1996 1995 1994
------------------------- ---------------------- -------------------------
Amount of Amount of Amount of
Amount of Loans to Amount of Loans to Amount of Loans to
Allowance Gross Allowance Gross Allowance Gross
Loans Loans Loans
------------- ----------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $ 326 81.71% $ 125 83.70% $ 77 82.60%
Residential multi-family 1 0.64% - 0.75% - 0.78%
Nonresidential real estate 3 2.74% 3 2.68% 4 2.83%
Residential construction - 5.41% - 4.78% - 5.41%
Land 7 5.82% - 4.35% - 4.50%
Line of credit - 3.41% 8 3.45% - 3.64%
-------- --------- ----------- -------- ----------- --------
Total real estate loans 337 99.73% 136 99.71% 81 99.76%
Consumer loans:
Share - 0.18% - 0.10% - 0.0009
Credit reserve - 0.09% 1 0.19% - 0.0015
-------- --------- ----------- -------- ----------- --------
Total consumer loans - 0.27% 1 0.29% - 0.0024
Unallocated 90 - 59
-------- --------- ----------- -------- ----------- --------
Total allowance for loan losses $ 427 100.00% $ 137 100.00% $ 140 100.00%
======== ========= =========== ======== =========== ========
<CAPTION>
At September 30,
--------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------- -----------------------
Amount of Amount of Amount of
Amount of Loans to Amount of Loans to Amount of Loans to
Allowance Gross Allowance Gross Allowance Gross
Loans Loans Loans
------------- ----------- ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
Residential 1-4 family $ 129 83.33% $ 109 82.69% $ 92 85.04%
Residential multi-family - 0.61% - 0.65% - 0.59%
Nonresidential real estate 6 3.03% 14 3.52% - 4.10%
Residential construction - 5.51% - 5.07% - 3.74%
Land - 4.12% - 4.88% - 4.08%
Line of credit - 3.08% - 2.88% - 2.12%
--------- ---------- ----------- --------- ---------- -----------
Total real estate loans 135 99.68% 123 99.69% 92 99.67%
Consumer loans:
Share - 0.0008 - 0.0023 - 0.0026
Credit reserve - 0.0024 - 0.0008 - 0.0007
--------- ---------- ----------- --------- ---------- -----------
Total consumer loans - 0.0032 - 0.0031 - 0.0033
Unallocated 9 21 85
--------- ---------- ----------- --------- ---------- -----------
Total allowance for loan losses $ 144 100.00% $ 144 100.00% $ 177 100.00%
========= ========== =========== ========= ========== ===========
</TABLE>
23
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Mortgage Backed Securities and Investments
Table I.13 provides a breakdown of investments, including mortgage backed
securities, with maturity and yield information.
24
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
<TABLE>
<CAPTION>
Table I.13 - Investment Securities
After One Year After Five Years
One Year or Less Through Five Years Through Ten Years
----------------------- ------------------------ -------------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
----------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits $ 11,931 5.35% $ - $ -
Mortgage-backed securities - - -
U.S. Treasury securities
Available for sale 10,021 5.78% 19,907 5.69% -
Federal Home Loan Bank Stock (1) - - -
Other (1) - -
----------- ---------- ------------ ---------- ------------ -----------
Total $ 21,952 5.55% $ $19,907 5.69% $ -
=========== ========== ============ ========== ============ ===========
<CAPTION>
After Ten Years Total
----------------------- ----------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
----------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Interest -bearing deposits $ - $ 11,931 5.35%
Mortgage-backed securities 5,987 7.71% 5,987 7.71%
-
U.S. Treasury securities
Available for sale - 29,928 5.72%
Federal Home Loan Bank Stock (1) 1,346 6.98% 1,346 6.98%
Other (1) 15 15
------------- -------- ------------ --------
Total $ 7,348 7.56% $ 49,207 5.91%
============= ======== ============ ========
</TABLE>
(1) Nonmarketable equity security; substantially all required to be maintained
and assumed to mature in period greater than 10 years.
Source: Offering Circular
25
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Savings Deposits
At March 31, 1996, Home Savings' deposit portfolio was composed as follows:
NOW accounts--$6.71 million or 4.65%; Passbook savings--$15.39 million or
10.67%; money market accounts--$7.53 million or 5.22%; non-interest bearing
checking accounts--$.72 million or 0.5%; and certificate accounts--$113.73
million or 78.82% (see Table I.14). Savings and transaction accounts displayed a
narrow range of rates (74 basis points), all are 3.0% and under, and the
weighted average cost of transaction account is 2.63%. Certificates of deposit
had an average rate of 6.09%.
26
<PAGE>
<TABLE>
<CAPTION>
Table I.14 - Deposit Composition - Rates and Terms
At March 31, 1996 At September 30,
----------------------------------- ------------------------------------------------
1995
------------------------------------------------
Weighted Weighted
Average % of Average % of
Amount Rate Deposits Amount Rate Deposits Amount
--------- ----------- ----------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Demand accounts:
Passbook savings $ 15,390 3.00% 10.67% $ 15,490 3.00% 11.25% $ 17,711
NOW accounts 6,710 2.26% 4.65% 6,331 3.02% 4.60% 6,300
Money market deposit accounts 7,529 2.99% 5.22% 7,809 3.25% 5.67% 12,164
Noninterest bearing accounts 723 0.50% 562 0.41% 647
----------- ----------- -----------
Total demand deposits 30,352 2.63% 21.04% 30,192 3.01% 21.93% 36,822
Certificates of deposit 113,728 6.09% 78.82% 107,280 6.10% 77.94% 90,378
Accrued interest 202 0.14% 175 0.13% 112
----------- ----------- -----------
Total deposits $ 144,282 5.40% 100.00% $ 137,647 5.43% 100.00% $ 127,312
=========== =========== ===========
<CAPTION>
-------------------------------------------------------------
1994 1993
----------------------- ----------------------------------
Weighted Weighted
Average % of Average % of
Rate Deposits Amount Rate Deposits
---------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Demand accounts:
Passbook savings 3.00% 13.91% $ 17,984 3.00% 12.87%
NOW accounts 2.72% 4.95% 5,865 3.00% 4.20%
Money market deposit accounts 2.25% 9.55% 11,219 3.25% 8.03%
Noninterest bearing accounts 0.51% 507 0.36%
-----------
Total demand deposits 2.98% 28.92% 35,575 3.04% 25.46%
Certificates of deposit 3.98% 70.99% 104,002 4.08% 74.46%
Accrued interest 0.09% 108 0.08%
-----------
Total deposits 3.67% 100.00% $ 139,685 3.82% 100.00%
===========
</TABLE>
27
<PAGE>
FERGUSON & CO., LLP Section I.
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Table I.8 shows that the weighted average interest rates paid on savings
have fluctuated as follows: year ended September 30, 1993--4.36%; year ended
September 30, 1994--3.68%; year ended September 30, 1995--4.61%; and six months
ended March 31, 1996--5.44%. Both the spread and the net yield on average
interest earning assets has gradually declined since the spread reached a high
of 4.38% at September 30, 1994.
Home Savings' reliance on jumbo certificates of deposit for funding is not
excessive. At March 31, 1996, the Bank had $10.1 million in certificates that
were issued for $100 thousand or more (see Table I.15).
<TABLE>
<CAPTION>
Table I.15
Jumbo Certificates of Deposits
At
March 31, 1996
--------------
(In Thousands)
<S> <C>
3 months or less $ 2,120,000
Over 3 months through 6 months 2,490,000
Over 6 months through 12
months 1,915,000
Over 12 months 3,582,000
-------------
Total $10,107,000
=============
</TABLE>
28
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
Table I.16 presents information on deposit flows during each of the years
in the five year period ended September 30, 1995, and for the six month periods
ended March 31, 1995 and 1996.
29
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ----------
<TABLE>
<CAPTION>
Table I.16 - Deposits Flows
At or For the Six Months
Ended March 31, At or For the Year Ended September 30,
------------------------ ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Total deposits at
beginning of period $ 137,647 $ 127,312 $ 127,312 $ 139,685 $ 138,753 $ 133,524 $ 114,462
Net increase (decrease)
before interest credited 2,804 (1,433) 4,355 (17,346) (5,105) (2,813) 9,978
Interest credited 3,831 2,532 5,980 4,973 6,037 8,042 9,084
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total deposits at end of
period $ 144,282 $ 128,411 $ 137,647 $ 127,312 $ 139,685 $ 138,753 $ 133,524
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
30
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ---------
Borrowings
Home Savings has no borrowings at the current time and historically has not
relied on borrowings as a source of funding.
Subsidiaries
Home Savings has no subsidiaries.
Legal Proceedings
From time to time, Home Savings becomes involved in legal proceedings
principally related to the enforcement of its security interest in real estate
loans. In the opinion of Management of the Bank, no legal proceedings are in
process or pending that would have a material effect on Home Savings' financial
position, results of operations, or liquidity.
EARNINGS CAPACITY OF THE INSTITUTION
As in any interest sensitive industry, the future earnings capacity of Home
Savings will be affected by the interest rate environment. Historically, the
thrift industry has performed at less profitable levels in periods of rising
interest rates. This performance is due principally to the general composition
of the assets and the limited repricing opportunities afforded even the
adjustable rate loans and MBS's. The converse earnings situation (falling rates)
does not afford the same degree of profitability potential for thrifts due to
the tendency of homeowners to refinance both high rate fixed rate loans and
adjustable loans as rates decline.
31
<PAGE>
FERGUSON & CO., LLP Section I.
- ------------------- ---------
Home Savings is no exception to the aforementioned phenomenon. However, as
discussed earlier, Home Savings has significant interest rate risk in the near
term (see Table I.2). Hopefully a large portion of the infused capital will be
used to acquire assets that afford more repricing opportunities.
The addition of capital through the conversion will allow Home Savings to
grow. As growth is attained, the leverage of that new capital should, from a
ratio of expenses to total assets standpoint, reduce the ratio, and produce more
efficiencies.
Asset-Size-Efficiency of Asset Utilization
At its current size and in its current asset configuration, Home Savings is
an efficient operation. With total assets of approximately $167 million, Home
Savings has 37 full time equivalent employees. The operating expenses are below
national averages for thrifts. The principal reason for the below average cost
of operations is the branch network, two offices handling $167 million in assets
and $144 million in deposits. The average size per office promotes operational
efficiency, and Home Savings has the foundation from which Management can build
the Bank size without significantly increasing operating expenses, thereby
further enhancing efficiency.
Projected Dividend Policy-Capacity to Pay
Home Savings has determined, on a preliminary basis, to pay a cash dividend
on the conversion stock, however, the amount of the dividend is yet to be
announced. It is anticipated that such dividend will be paid on a quarterly
basis with the first dividend
32
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FERGUSON & CO., LLP Section I.
- ------------------- ----------
payable at the end of the first full quarter following conversion. The business
plan projects that there will be sufficient earnings and capital to pay a
dividend, however, there is no assurance that some economic or regulatory factor
will not prevent the payment of the dividend.
In the comparable group, the dividend yield has a mean of 2.04% and a
median of 2.05%, and for all publicly held thrifts the mean is 2.20% and the
median is 2.22% (see Table III.3). The payment of a dividend would enhance the
marketability of the Common Stock to be issued by Home Savings.
Intangible Values
Home Savings' greatest intangible value lies in the loyal deposit base.
Over 90% of the deposits of the Bank could be considered core deposits. Within
that deposit base is a stable number of passbook savings and transaction
accounts (21%), and that percentage has remained relatively constant. In
addition, Home Savings has an 85 year history of sound operations, controlled
growth, and consistent earnings. The Bank has approximately 23% of the market in
its area (Stanly County), and it has the ability to increase that market share.
33
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FERGUSON & CO., LLP Section I.
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Home Savings has no intangible values that could be attributed to
unrecognized asset gains on investments and real estate, except that it may have
some unrealized appreciation in its office buildings (see Table I.17).
<TABLE>
<CAPTION>
Table I.17 - Buildings
Net Book Value Deposits
Address of Property In Thousands
- ----------------------- ---------------- ------------
<S> <C> <C>
Albemarle:
155 West South Street $ 658,264.0 $ 124,805
P.O. Box 489
Albemarle, North Carolina 28002-0489
West Stanly:
Highway 27-24 215,296 19,477
P.O. Box 658 ------------- -----------
Locust, North Carolina 28097-0658
$ 873,560 $ 144,282
============= ===========
</TABLE>
Effect of Government Regulations
Still considered a traditional thrift, Home Savings has distinguished
itself as a residential lender. Emphasizing lending to individuals exacerbates
the Bank's regulatory compliance efforts. Government regulations will have the
greatest impact in the area of cost of compliance and reporting. The conversion
will create an additional layer of regulations and reporting and thereby
increase the cost to the Bank.
34
<PAGE>
SECTION II
MARKET AREA
<PAGE>
FERGUSON & CO., LLP Section II.
- ------------------- -----------
II. MARKET AREA
DEMOGRAPHICS
Home Savings conducts its operations through two offices. Its home
office located at 155 West South Street, Albemarle, North Carolina, and a second
office located in Locust, North Carolina. Both municipalities are located in
Stanly County. Albemarle, North Carolina, is located approximately 50 miles
northeast of Charlotte, North Carolina, and approximately 115 miles west-
southwest of Raleigh, North Carolina. It is also located near the intersection
of Interstate Highway 85 and State Highway 49. Albemarle is serviced by rail and
bus transportation and is 50 miles from commercial air transportation at
Charlotte, North Carolina.
Home Savings has determined that its principal trade area is Stanly
County. In addition, significant market penetration has been made into adjoining
counties not yet considered part of its principal trade area. Table II.1
presents historical and projected trends for the United States, North Carolina,
Stanly County, and the cities of Albemarle and Locust, North Carolina. The
information provided addresses population, income, employment, and housing
trends.
1
<PAGE>
FERGUSON & CO., LLP Section II.
- ------------------- -----------
Table II.1 - Demographic Trends
<TABLE>
<CAPTION>
Key Economic Indicators
United States, North Carolina, Stanly County, Albemarle and Locust
===============================================================================================
United North Stanly
Key Economic Indicator States Carolina County Albemarle Locust
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Population, 1999 Est. 272,611,571 7,462,151 55,982 15,506 2,157
1994 - 99 Percent Change, Est 5.28 5.96 3.83 2.21 4.91
Total Population, 1994 Est. 258,935,571 7,042,349 53,915 15,171 2,056
1990 - 94 Percent Change, Est 4.81 6.24 4.15 1.55 5.98
Total Population, 1990 247,051,601 6,628,637 51,765 14,939 1,940
-----------------------------------------------------------------------------------------------
Per Capita Income, 1999 Est 16,820 14,926 12,545 13,047 13,155
1994 - 99 Percent Change, Est 1.76 0.65 0.53 0.45 (0.10)
Per Capita Income, 1994 Est 16,529 14,830 12,479 12,988 13,168
1990 - 94 Percent Change, Est 14.73 15.10 10.78 10.43 3.69
Per Capita Income, 1990 14,407 12,885 11,265 11,761 12,700
-----------------------------------------------------------------------------------------------
Household Income Distribution-1999 Est (%)
$14,999 and less 20 22 25 30 18
$15,000 - $34,999 31 35 39 38 39
$35,000 - $74,999 36 34 32 27 37
$75,000 and over 13 9 5 5 6
-----------------------------------------------------------------------------------------------
Unemployment rate, 1990 6.24 4.63 4.43 6.66 4.69
-----------------------------------------------------------------------------------------------
Median Age of Population, 1999 Est 35.1 36.1 37.3 38.5 36.0
Median Age of Population, 1994 33.8 34.3 35.7 37.6 33.6
-----------------------------------------------------------------------------------------------
Average Housing Value, 1990 79,098 79,714 59,775 57,349 64,976
-----------------------------------------------------------------------------------------------
Total Households, 1999 Est. 100,885,151 2,852,548 21,379 6,304 767
1994 - 99 Percent Change, Est 5.33 6.30 3.91 2.40 4.92
Total Households, 1994 95,780,718 2,683,466 20,574 6,156 731
1990 - 94 Percent Change, Est 4.79 6.61 4.19 1.68 6.10
Total Households, 1990 91,402,228 2,517,026 19,747 6,054 689
-----------------------------------------------------------------------------------------------
Total Housing Units 101,641,260 2,818,193 21,808 6,542 739
% Vacant 10.07 10.69 9.45 7.46 6.77
% Occupied 89.93 89.31 90.55 92.54 93.23
% By Owner 57.78 60.74 69.36 61.51 74.70
% By Renter 32.15 28.57 21.18 31.03 18.54
===============================================================================================
Source: Scan USA, Inc.
</TABLE>
2
<PAGE>
FERGUSON & CO., LLP Section II.
- ------------------- -----------
As indicated in Table II.1, and graphically displayed in Figure II.1,
Stanly County and Albemarle are experiencing growth rates, in terms of
population, below both that of the United States and the State of North
Carolina, which is above that of the United States, in the period between 1990
and 1994. However, the smaller town of Locust grew at a rate of 5.98% which is
higher than the US, Stanly County, and Albemarle, but less than that of North
Carolina, which grew at a rate of 6.24% for the same period. Growth projections
covering 1994 through 1999 show that the county and both cities in the trade
area are anticipating growth. The growth that is anticipated is less than that
anticipated for the State of North Carolina and the US, but it is still
significant growth and will produce positive economic results.
The smaller of the two cities, Locust, experienced the highest growth
rate between 1990 and 1994; and it is also anticipating a higher growth rate
between 1994 and 1999.
Per Capita Income (see Table II.1 and Figure II.2) growth experienced
between 1990 and 1994 in Home Savings' market area was generally below that
experienced for the United States and the State of North Carolina. The Per
Capita Income growth for that period was 15.10% for the State of North Carolina,
and 14.73% for the United States. All of the Home Savings' trade area fell below
the per capita income growth of the US and North Carolina. Rates were 10.78%,
10.43%, and 3.69%, for Stanly County, Albemarle, and Locust, respectively.
Future prospects for the trade area are also not as bright. Estimates
for 1999 show that Stanly County and Albemarle are expected to experience a
minor increase in per capita
3
<PAGE>
FERGUSON & CO., LLP Section II.
- ------------------- -----------
income, and Locust is expected to see a 0.10% decline in per capita income.
Locust, the smaller of the two cities, is not expected to have major impact on
the economy of the area.
Household income distribution reflects the traditional rural disparity.
There are more households in the trade area making less than $14,999 than in the
United States and the State of North Carolina, except for Locust, which has only
18% of its population making less than $14,999. There are also more people who
make less than $34,999 than in the US and North Carolina. At all income levels
displayed, this trade area shows less affluence than the United States and North
Carolina. In addition, the average house value of this area is much less than
the US and North Carolina. However, when it comes to the percentage of housing
units occupied by the owner, an indicator of home ownership, the trade area has
a higher percentage of home ownership than the US and the State of North
Carolina.
Important to any financial institution that is in the business of
financing homes is the growth in the number of households. Table II.1 and Figure
II.3 show that the prospects for the establishment of new households in the
trade area is good. From 1990 until 1994, Stanly County and Albemarle
experienced growth in the number of households and Locust remained flat.
However, the estimates for increases in households from 1994 until 1999 is good
in the entire trade area. Although none of the entities in the trade area are
anticipated to grow at a rate equal to that of the State of North Carolina or
the United States, growth is expected.
With projections of continued population growth, a relatively stable
per capita income, and an increasing number of new households being established,
the market for
4
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FERGUSON & CO., LLP Section II.
- ------------------- -----------
housing units should also be relatively stable. Competition for
loans within Home Savings' market will remain strong due to the number of
financial institutions in the area. In addition to financial institutions, the
trade area also has a number of non-regulated entities that will also provide
competition for home loans.
The amount of building permits issued in Home Savings' trade area (see
Table II.2) was $35.2 million in 1993, ($20.5 million residential and $14.7
million commercial). In 1994, building activity decreased with building permits
in the trade area totaling approximately $28.2 million ($18.7 million
residential and $9.5 million commercial). Information for 1995 shows a further
decline in building activity with permits totaling $27.6 million ($17.4 million
in residential and $10.4 million commercial).
The residential building permits are more likely to reflect the
potential market in which Home Savings will participate, since the Association
makes only a limited number of commercial loans. Residential permits remain
relatively stable through 1993, 1994, and 1995. The reflected stability should
present ample lending opportunities for Home Savings in both interim
construction loans and in permanent single family residential loans.
The principal sources of employment in Home Savings' trade area are
shown in Table II.3. The major sources of employment are manufacturing (43.4%)
and trade (20.7%). Manufacturing figures are well above the national average and
that of North Carolina. In the last ten years, a variety of industries have
moved to the area to take advantage of a well educated, mostly non-union work
force. The influx of manufacturing is a result of extreme efforts of economic
development organizations in the trade area to diversify the economy
5
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FERGUSON & CO., LLP Section II.
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and is a direct result of being in the State of North Carolina, which is the
12th most industrialized state in the union. The high incidence of manufacturing
facilities in the trade area are reflected in the Household Income Distribution
information. A relatively high percentage of the trade area population fall in
the two mid-income ranges, the range within which most local manufacturing
salaries would fall.
Analysis of the data above presents a picture of economic opportunity,
suggesting for Home Savings' opportunities for expansion within the economy.
Based on information publicly available on deposits as of June 30, 1995
(see Table II.4), the trade area in which Home Savings operates had $574.7
million in total deposits. Banks controlled $436.8 million, credit unions $2.9
million, and Homes Savings Bank, the only thrift, $134.8 million, which
represents 23.46% of the total deposit market. At that date, Home Savings was
competing with 20 offices of other financial institutions
Growth opportunities for Home Savings can be assessed by reviewing
economic factors in its market area. The salient factors include growth trends,
economic trends, and competition from other financial institutions. We have
reviewed these factors to assess the potential for the market area. In assessing
the growth potential of Home Savings, we must also assess the willingness and
flexibility of Management to respond to the competitive factors that exist in
their market area. Our analysis of the economic potential and the potential of
Management affects the valuation of the institution.
6
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FERGUSON & CO., LLP Section II.
- ------------------- -----------
Table II.2 - Summary of Building Permits
<TABLE>
<CAPTION>
Stanly County
- -------------
1993 1994 1995
-------------------- ------------------- -------------------
Value Value Value
Number ($000) Number ($000) Number ($000)
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Residential (1) 772 20,498 (2) 627 18,733 (3) 856 17,410
Commercial 243 14,698 209 9,514 204 10,431
--------- --------- ---------- -------- --------- --------
Total 1,015 35,196 836 28,247 1,060 27,841
========= ========= ========== ========= ======== ========
</TABLE>
Source: City of Albermarle and County of Stanly records.
7
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FERGUSON & CO., LLP Section II.
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<TABLE>
<CAPTION>
Table II.3 Employment by Industry
United States, North Carolina, and Stanly County
United North Stanly
Industry States Carolina County
=============================== ====== ======== ======
<S> <C> <C> <C>
Construction/Agriculture/Mining 9.5 6.7 6.2
Manufacturing 17.7 21.4 43.4
Transportation/Utilities 7.1 4.4 1.2
Trade 21.2 21.0 20.7
Finance/Insurance 6.9 5.6 2
Services 32.7 22.2 13.4
Public Administration 4.8 16.4 13.1
</TABLE>
Source: North Carolina Employment Security Commission
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FERGUSON & CO., LLP Section II.
- ------------------- -----------
<TABLE>
<CAPTION>
Table II.4 - Market Area Deposits
Stanly County, North Carolina
1993 1994 1995
----------- ---------- ----------
(in Thousands)
Home Savings Branches
---------------------
<S> <C> <C> <C>
Albemarle - Main Office 127,865 118,298 118,500
Locust $ 14,706 $ 15,256 $ 16,325
---------- ---------- ----------
Total for Albemarle $142,571 $133,554 $134,825
---------- ---------- ----------
Total Savings Bank Deposits $142,571 $133,554 $134,825
---------- ---------- ----------
Number 1 1 1
Number of Branches 2 2 2
Banks
---------- ---------- ----------
Total Bank Deposits $420,124 $425,186 $436,849
---------- ---------- ----------
Number 7 7 6
Number of Branches 21 20 19
Credit Unions:
---------- ---------- ----------
Total Credit Union Deposits $ 3,321 $ 3,342 $ 2,981
---------- ---------- ----------
Number 1 1 1
Number of Branches 1 1 1
Total Stanly County Deposits $566,016 $562,082 $574,655
========== ========== ==========
Home Savings - Market Share
To Total Thrifts 100.00% 100.00% 100.00%
To Total Market Area Deposits 25.19% 23.76% 23.46%
</TABLE>
Source: BranchSource, a product of Sheshunoff Information Services, Inc.
9
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FERGUSON & CO., LLP Section II.
- ------------------- -----------
<TABLE>
<CAPTION>
- -----------------
Stanly County
(000's)
- -----------------
<S> <C>
1990 51.8
Est. 1994 53.9
Est. 1999 56.0
</TABLE>
- -----------------
Stanly County Population Trends
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------
Albermarle, N.C.
(000's)
- -----------------
<S> <C>
1990 14.9
Est. 1994 15.2
Est. 1999 15.5
</TABLE>
- -----------------
Albermarle, N.C. Population Trends
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------
Locust, N.C.
(000's)
- -----------------
<S> <C>
1990 1.9
Est. 1994 2.1
Est. 1999 2.2
</TABLE>
- -----------------
Locust, N.C. Population Trends
[BAR GRAPH APPEARS HERE]
Figure II.1 - Population Trends
10
<PAGE>
FERGUSON & CO., LLP Section II.
- ------------------- -----------
<TABLE>
<CAPTION>
- -----------------
Stanly County
(000's)
- -----------------
<S> <C>
1990 11.3
Est. 1994 12.5
Est. 1999 12.6
</TABLE>
- -----------------
Stanly County Per Capita Income Trends
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------
Albermarle, N.C.
(000's)
- -----------------
<S> <C>
1990 11.8
Est. 1994 12.9
Est. 1999 13.0
</TABLE>
- -----------------
Albermarle, N.C. Per Capita Income Trends
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------
Locust, N.C.
(000's)
- -----------------
<S> <C>
1990 12.7
Est. 1994 13.2
Est. 1999 13.2
</TABLE>
- -----------------
Locust, N.C. Per Capita Income Trends
[BAR GRAPH APPEARS HERE]
Figure II.2 - Per Capita Income
11
<PAGE>
FERGUSON & CO., LLP Section II.
- ------------------- -----------
<TABLE>
<CAPTION>
- -----------------
Stanly County
(000's)
- -----------------
<S> <C>
1990 19.7
Est. 1994 20.6
Est. 1999 21.4
</TABLE>
- -----------------
Stanly County Est. # Household Trends
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------
Albermarle, N.C.
(000's)
- -----------------
<S> <C>
1990 6.1
Est. 1994 6.2
Est. 1999 6.3
</TABLE>
- -----------------
Albermarle, N.C. Est. # Household Trends
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
- -----------------
Locust, N.C.
(000's)
- -----------------
<S> <C>
1990 0.7
Est. 1994 0.7
Est. 1999 0.8
</TABLE>
- -----------------
Locust, N.C. Est. # Household Trends
[BAR GRAPH APPEARS HERE]
Figure II.3 - Household Trends
12
<PAGE>
SECTION III
COMPARISON WITH PUBLICLY
TRADED THRIFTS
<PAGE>
FERGUSON & CO., LLP SECTION III
- ------------------- -----------
III. COMPARISON WITH PUBLICLY TRADED THRIFTS
COMPARATIVE DISCUSSION
This section presents an analysis of Home Savings relative to a group of
12 publicly traded thrift institutions ("Comparative Group"). Such analysis is
necessary to determine the adjustments that must be made to the pro forma market
value of Home Savings stock. Table III.1 presents a listing of the comparative
group with general information about the group. Table III.2 presents key
financial indicators relative to profitability, balance sheet composition and
strength, and risk factors. Table III.3 presents a pro forma comparison of Home
Savings to the comparative group. Exhibits III and IV contain selected financial
information on Home Savings and the comparative group. This information is
derived from quarterly TFR's filed with the OTS and call reports filed with the
FDIC. The selection criteria and comparison with the Comparative Group are
discussed below.
Selection Criteria
Ideally, the comparative group would consist of thrifts in the same
geographic region with identical local economies, asset size, capital level,
earnings performance, asset quality, etc. However, there are few comparably
sized institutions with stock that is liquid enough to provide timely,
meaningful market values. Therefore, we have selected a group of comparatives
that are either listed on the New York Stock Exchange, the American Stock
Exchange, or NASDAQ. We excluded companies that are apparent takeover targets
and companies with unusual characteristics that tend to distort both mean and
median
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FERGUSON & CO., LLP SECTION III.
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calculations. For example, we have excluded all companies with losses during the
trailing 12 months. We have also excluded mutual holding companies.
Because of the limited number of similar size thrifts with sufficient
trading volume, we looked for members of the comparative group among thrifts
with assets between $125 million and $350 million. The Southeast Region, which
includes North Carolina, has so few thrifts in this size range that are not
located in Florida that only five publicly traded institutions were used from
the Southeast Region. The area was then expanded to include the Midwest and the
Mid-Atlantic. Both regions are contiguous and the micro-economics of the three
regions are not dissimilar. Eighteen institutions that appeared to have been
stock companies for at least one year were selected from these regions. We
eliminated six for various reasons: (a) one was an announced target for
takeover; (b) two had loans to deposit ratios that would not allow them to be
compared to the subject; (c) one had earnings that were too low; (d) one was a
mortgage banking operation; and (e) the remaining one had not been converted for
more than one year. A detailed list of possible comparables, and the reasons for
their elimination is shown in Table III.4.
The principal source of data was SNL Securities, Charlottesville,
Virginia. The entire database of approximately 420 publicly held thrifts is
included in Exhibit V. In developing statistics for the entire country, we
eliminated certain institutions that skewed the results, in order to make the
data more meaningful:
. Eliminated companies with losses;
. Eliminated indicated acquisition targets;
2
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FERGUSON & CO., LLP SECTION III.
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. Eliminated companies with price/earnings ratios in excess of 25; and
. Eliminated companies that had not reported as a stock institution for
one complete year.
The resulting group of 261 publicly traded thrifts is included in Exhibit VI.
The selected group of comparatives has sufficient trading volume to
provide meaningful price data. Although all of the ones selected are not in the
same geographic region as the subject institution, the similarities of the
institutions with regard to asset composition and quality provide more
comparability than geographic location. With total assets of approximately $170
million, Home Savings is in line with the group selected, which has average
assets of $221 million and median assets of $212 million.
Profitability
Using the comparison of profitability components (as calculated in
appraisal earnings) as a percentage of average assets, Home Savings was slightly
below the comparative group in return on assets, .76% to .95%; loss provisions
were not meaningful to compare due to the large provision taken in the Quarter
ended March 31, 1996. Ignoring the $300 thousand provision, the comparison would
be 0.0% to .13%; operating expense, 2.20% to 2.29%; and core income, .74% to
.91%. Home Savings was below the comparative group in net interest income, 3.19%
to 3.55%; and other operating income, .07% to .40%. After the offering,
deployment of the proceeds will provide additional income, and Home Savings will
come closer to the comparative group in terms of return on average assets, with
a return of .99% at
3
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FERGUSON & CO., LLP Section III.
- ------------------- ------------
the midpoint of the appraisal range. Pro forma return on average equity is 3.74%
at the midpoint, versus a mean of 8.97% and median of 7.76% for the comparative
group.
Balance Sheet Characteristics
The general asset composition of Home Savings is close to that of the
comparative group. Home Savings has a comparable percentage of its assets in
cash and investment securities, 25.88% vs 34.79% for the comparables. Home
Savings' loans and MBS's total 68.63% of assets and the comparable group
reflects 74.50%. The difference in these asset areas is reflected in the
funding. Home Savings has no borrowings, and the comparable group has 8.54% in
borrowings.
Home Savings has a lower level of operating expenses, which as a
percentage of average assets was 2.20%, as compared to 2.29% for the comparative
group. Home Savings' percentage of earning assets to interest costing
liabilities is approximately the same as the group. Home Savings has 112.09% and
the comparative group averages 112.29%. After the sale of additional capital
stock, Home Savings' ratio will be higher than that of the group of
comparatives. Home Savings' other operating income is less than the comparative
group. The Bank reports other operating income of .07% and the comparatives
report .40%.
The liability side differs mainly in that Home Savings has a lower
percentage of borrowings and a higher percentage of savings deposits. Home
Savings' capital level is 12.41% versus 9.42% for the comparative group
(tangible capital ratios are 12.41% to 9.32%). Home Savings' capital level will
be well above the comparative group after the sale of additional stock is
completed.
4
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FERGUSON & CO., LLP SECTION III.
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Risk Factors
Home Savings' level of nonperforming assets are lower than the
comparative group. Home Savings' nonperforming assets are 0.46% of total assets,
compared to 0.94% of total assets for the group. Home Savings' loan loss
allowance as a percentage of nonperforming assets is well below that of the
comparative group, with a loss coverage of 62.25% versus 177.31% for the
comparative group. Although lower than the comparative group, the portfolio
composition and historical losses seem to indicate that the loan loss allowance
for Home Savings is adequate. Composite asset/liability repricing gap seems to
be the area of significant differences. The average gap of the comparative group
is reported to be a negative 1.07% (only six of the 12 reported), while Home
Savings' reported gap position is a negative 41.56%, and represents a major
departure from the comparative group in this area. The negative gap position
places Home Savings in a higher category as it relates to interest rate risk.
Summary of Financial Comparison
Based on the above discussion of operational, balance sheet, and risk
characteristics of Home Savings compared with the group, we believe that Home
Savings' performance is slightly below that of the comparative group principally
as a result of lower net interest margins and the high levels of interest rate
risk.
5
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FERGUSON & CO., LLP Section III.
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FUTURE PLANS
Home Savings' future plans are to remain a well capitalized, profitable
institution with good asset quality and a commitment to serving the needs of its
trade area. Management recognizes that it will take time to invest the proceeds
of its capital infusion in a manner consistent with its historic performance and
current policy. During that period of time, Management is willing to accept a
lower return on assets as well as a lower return on equity capital.
Home Savings has always adhered to a controlled growth policy, and in
recent years, it has shrunk and grown as it controlled its rates paid and
overall spreads. The additional capital raised by the sale of Common Stock will
initially be used to purchase short term investment securities. The current
business plan indicates that there will be continued emphasis on residential
one-to-four lending and Management is considering emphasizing other types of
lending that will assist in improving margins and more significantly assist in
controlling the interest rate risk. Variable rate products and short term loans,
along with consumer transaction, are things that are being considered.
Home Savings has no current plans to open or acquire additional
branches. However, the additional capital would make acquisition of branches a
viable option. If the opportunity arises, Management will assess the feasibility
of the transaction at that time, taking into consideration the existing economic
environment.
6
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FERGUSON & CO., LLP Section III.
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Increasing market penetration by increasing the number of services and
products available, coupled with the possibility of new branch locations, are
the most likely methods to be employed to achieve growth.
7
<PAGE>
FERGUSON & CO., LLP SECTION III.
- ------------------- ------------
Table III.1 - Comparatives General Information
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Total Current Current
- ----------------------------------------------------------------------------------------------------------------
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City State Offices Mst RctQ IPO Date ($) ($M)
- -------- ---------------------------- ---------------- ----- ------- -------- -------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC First Georgia Holding, Inc. Brunswick GA 7 135,582 02/11/87 7.00 14.01
FIBC Financial Bancorp, Inc. Long Island City NY 5 243,450 08/17/94 13.25 24.82
FLAG FLAG Financial Corp. LaGrange GA 3 232,105 12/11/86 13.50 25.87
FOBC Fed One Bancorp Wheeling WV 9 339,562 01/19/95 15.13 37.65
FSBI Fidelity Bancorp, Inc. Pittsburgh PA 8 287,465 06/24/88 17.50 21.69
LARL Laurel Capital Group, Inc. Allison Park PA 6 192,654 02/20/87 16.00 24.12
NFSL Newnan Savings Bank, FSB Newnan GA 8 160,656 03/01/86 18.00 26.04
PLE Pinnacle Bank Jasper AL 5 194,311 12/17/86 16.38 14.57
SFED SFS Bancorp, Inc. Schenectady NY 3 165,569 06/30/95 12.75 17.79
SHEN First Shenango Bancorp, Inc. New Castle PA 4 355,710 04/06/93 20.50 47.31
SJSB SJS Bancorp St. Joseph MI 4 143,857 02/16/95 19.00 18.09
WVFC WVS Financial Corporation Pittsburgh PA 5 230,276 11/29/93 21.25 36.90
Maximum 9 355,710 21.25 47.31
Minimum 3 135,582 7.00 14.01
Average 6 223,433 15.85 25.74
Median 5 212,294 16.19 24.47
</TABLE>
Source: SNL and F&C calculations
8
<PAGE>
FERGUSON & CO., LLP SECTION III.
- ------------------- ------------
Table III.2 - Key Financial Indicators
<TABLE>
<CAPTION>
Home Saving Bank Comparative
Albemarle, NC Group
--------------------------------
<S> <C> <C>
Profitability
(% of average assets)
Net income 0.76 0.95
Net interest income 3.19 3.55
Loss provisions N/M 0.13
Other operating income 0.07 0.40
Operating expense 2.20 2.29
Core income (excluding gains
and losses on asset sales) 0.74 0.91
Balance Sheet Factors
(% of assets)
Cash and investments 25.88 34.79
Mortgage-backed securities 3.57 13.00
Loans 65.06 61.50
Savings deposits 86.30 78.93
Borrowings - 8.54
Equity 12.41 9.42
Tangible equity 12.41 9.32
Risk Factors
(%)
Earning assets/costing liabilities 112.09 112.29
Non-performing assets/assets 0.46 0.94
Loss allowance/non performing assets 62.25 177.31
Loss allowance/loans 0.41 1.02
One year gap/assets (41.56) (1.07)
</TABLE>
(*) Six of the twelve comparables reported gap assets.
Source: SNL Securities, F&C calculations, and Offering Circular
9
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FERGUSON & CO., LLP Section III.
- ------------------- ------------
<TABLE>
<CAPTION>
Table III.3 - Pro Forma Comparison Converting Institution to Comparative Group and Others
Home Savings Bank, SSB
As of April 30, 1996
Ticker Name Price Mk PE P/Book P/TBook P/Assets Div Yld Assets Eq/A TEq/A EPS ROAA ROAE
Value
($) ($Mil) (X) (%) (%) (%) (%) (000's) (%) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Home Savings Bank, SSB
Before Conversion N/A N/A N/A N/A N/A N/A N/A 166,978 12.41 12.41 N/A 0.76 5.78
Pro Forma Supermax 10.00 44.97 21.77 76.39 76.39 21.92 TBA 205,124 28.70 28.70 0.46 1.05 3.51
Pro Forma Maximum 10.00 39.10 20.05 72.64 72.64 19.54 TBA 200,082 26.90 26.90 0.50 1.02 3.62
Pro Forma Midpoint 10.00 34.00 18.38 68.77 68.77 17.37 TBA 195,698 25.26 25.26 0.54 0.99 3.74
Pro Forma Minimum 10.00 28.90 16.52 64.14 64.14 15.11 TBA 191,313 23.55 23.55 0.61 0.96 3.88
TBA - To be announced.
Comparative Group
- -----------------
Averages 15.85 25.74 13.88 108.80 111.40 11.63 2.04 223,433 11.12 10.96 1.20 0.95 8.97
Medians 16.19 24.47 13.37 101.55 101.79 11.12 2.05 212,294 11.45 11.38 1.23 0.88 7.76
North Carolina Public Thrifts
- -----------------------------
Averages 14.75 35.73 14.28 102.35 102.37 16.82 3.05 197,694 16.59 16.58 1.03 1.21 8.43
Medians 17.25 24.14 12.32 106.61 106.61 12.73 3.14 246,918 15.16 15.15 0.97 1.14 6.85
Southeast Region Thrifts
- ------------------------
Averages 17.18 70.75 14.30 121.93 125.86 13.38 2.57 546,173 11.55 11.35 1.24 1.03 10.22
Medians 16.19 46.41 13.64 116.84 117.19 11.39 2.51 349,522 8.70 8.53 1.23 0.99 9.62
All Public Thrifts
- ------------------
Averages 19.13 156.49 13.92 113.78 117.49 11.34 2.20 1,652,243 10.40 10.25 1.48 0.96 10.32
Medians 17.63 49.57 13.44 108.77 112.15 10.26 2.22 452,455 8.86 8.60 1.39 0.92 9.59
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Table III.3 - Pro Forma Comparison Converting Institution to Comparative Group and Others (Continued)
Comparative Group
- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC FrstGeorgiaHldg
-GA 7.00 14.01 12.73 143.74 163.55 10.27 - 135,582 8.30 7.36 0.55 0.89 11.09
FIBC FinancialBancp
-NY 13.25 24.82 19.49 94.44 94.98 10.68 2.26 243,450 11.31 11.25 0.68 0.61 4.70
FLAG FLAGFinCp
-GA 13.50 25.87 15.34 141.66 141.66 11.14 2.22 232,105 8.92 8.92 0.88 0.87 9.78
FOBC FedOneBancorp
-WV 15.13 37.65 12.50 91.50 96.65 11.09 3.57 339,562 12.12 11.55 1.21 1.00 7.74
FSBI FidelityBncrp
-PA 17.50 21.69 14.00 95.26 96.31 7.54 1.83 287,465 7.91 7.83 1.25 0.57 7.31
LARL LaurelCapitalGp
-PA 16.00 24.12 10.13 119.58 119.58 12.52 2.00 192,654 10.47 10.47 1.58 1.35 13.39
NFSL NewnanSvgsBk
-GA 18.00 26.04 9.78 139.97 140.85 16.21 2.22 160,656 11.58 11.51 1.84 1.89 17.69
PLE PinnacleBank
-AL 16.38 14.57 10.70 97.24 100.96 7.50 4.40 194,311 7.71 7.45 1.53 0.77 10.29
SFED SFSBancorp
-NY 12.75 17.79 15.18 76.44 76.44 10.74 - 165,569 14.06 14.06 0.84 0.63 5.06
SHEN FstShenangoBcp
-PA 20.50 47.31 14.96 100.49 100.49 13.30 1.95 355,710 13.24 13.24 1.37 1.01 7.19
SJSB SJSBancorp
-MI 19.00 18.09 19.00 102.70 102.70 12.58 2.11 143,857 12.25 12.25 1.00 0.68 5.67
WVFC WVSFinancial Cp
-PA 21.25 36.90 12.72 102.61 102.61 16.02 1.88 230,276 15.62 15.62 1.67 1.18 7.77
</TABLE>
Note: Stock prices are closing prices or last trade. Pro forma calculations for
Home Saving Bank are based on sales at $10 per share with a midpoint of
$34,000,000, minimum of $28,900,000, and maximum of $39,100,000
Source: Home Savings Bank's Audited Financial Statements, SNL Securities, and
F&C calculations.
11
<PAGE>
<TABLE>
<CAPTION>
Table III.4 - Comparable Selection
Comparables - Thrifts $125 million to $350 million
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 7.000
FIBC Financial Bancorp, Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 12.500
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 13.500
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 15.125
FSBI Fidelity Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 17.000
LARL Laurel Capital Group, Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 15.750
NFSL Newnan Savings Bank, FSB Newnan GA SE SAIF NASDAQ 03/01/86 16.250
PLE Pinnacle Bank Jasper AL SE SAIF AMSE 12/17/86 17.875
SFED SFS Bancorp, Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 12.250
SHEN First Shenango Bancorp, Inc. New Castle PA MA SAIF NASDAQ 04/06/93 20.750
SJSB SJS Bancorp St. Joseph MI MW SAIF NASDAQ 02/16/95 19.750
WVFC WVS Financial Corporation Pittsburgh PA MA SAIF NASDAQ 11/29/93 21.250
Maximum 21.250
Minimum 7.000
Average 15.750
Median 16.000
</TABLE>
<TABLE>
<CAPTION>
Rejects and Reasons
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 20.000
Loans to Deposit Ration to high - Borrowing Levels do not match - Deposits as a % of total assets to low.
---------------------------------------------------------------------------------------------------------
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 7.750
Mortgage banking is major portion of business.
----------------------------------------------
COOP Cooperative Bankshares, Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 18.350
Earnings to low.
----------------
COSB CSB Financial Corporation Lynchburg VA SE SAIF NASDAQ 09/28/93 21.000
Reasonable match - except merger target.
----------------------------------------
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 15.000
Good Asset utilization match - Capital to high - Less than one year since conversion.
-------------------------------------------------------------------------------------
JEBC Jefferson Bancorp, Inc. Gretna LA SW SAIF NASDAQ 08/18/94 19.125
Good match except loans to deposit ratio is to low.
---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Current Price/ Current
Market Price/ Core Price/
Value TM Core EP EPS Book Value
Ticker Short Name ($M) (x) (x) (%)
<S> <C> <C> <C> <C> <C>
FGHC First Georgia Holding, Inc. 13.93 12.73 14.58 143.74
FIBC Financial Bancorp, Inc. 23.42 18.38 12.02 89.09
FLAG FLAG Financial Corp. 27.46 14.36 14.67 135.00
FOBC Fed One Bancorp 38.98 NA 11.46 92.56
FSBI Fidelity Bancorp, Inc. 21.05 13.60 12.50 92.54
LARL Laurel Capital Group, Inc. 23.74 9.97 9.84 117.71
NFSL Newnan Savings Bank, FSB 23.51 8.83 9.67 126.36
PLE Pinnacle Bank 15.91 11.68 10.39 106.15
SFED SFS Bancorp, Inc. 18.31 NA 15.31 75.48
SHEN First Shenango Bancorp, Inc. 47.92 15.84 14.82 100.63
SJSB SJS Bancorp 18.81 NA 19.75 106.76
WVFC WVS Financial Corporation 36.90 12.72 9.49 102.61
Maximum 47.92 18.38 19.75 143.74
Minimum 13.93 8.83 9.49 75.48
Average 25.83 13.12 12.88 107.39
Median 23.47 12.73 12.26 104.38
CFFC 25.39 12.20 11.90 117.22
UFRM 23.75 10.62 9.23 114.64
COOP 27.22 32.59 41.48 93.59
COSB 54.48 27.27 27.63 117.71
FTF 29.76 NA 9.62 88.92
JEBC 41.99 14.83 20.79 120.59
</TABLE>
12
<PAGE>
FERGUSON & CO., LLP Section III.
- ------------------- ------------
Table III.4 - Comparable Selection (Continued)
<TABLE>
<CAPTION>
Tangible Return on Return on ROACE
Current Current Total Equity/ Equity/ Core Core Avg Assets Avg Assets Before
Price/ Tang Price/ Dividend Assets Assets Tang Assets EPS EPS Before Extra Before Extra Extra
Book Value Assets Yield ($000) (%) (%) ($) ($) (%) (%) (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM Mst RctQ LTM Mst RctQ LTM
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC 163.55 10.27 - 135,582 8.30 7.36 0.55 0.12 0.89 0.79 11.09
FIBC 89.61 10.07 2.40 243,450 11.31 11.25 0.68 0.26 0.61 0.84 4.70
FLAG 135.00 11.93 2.22 230,129 9.57 9.57 0.94 0.23 0.86 0.95 9.86
FOBC 97.77 11.66 3.57 334,297 12.59 12.00 NA 0.33 1.02 1.07 7.73
FSBI 93.56 7.32 1.88 287,465 7.91 7.83 1.25 0.34 0.57 0.58 7.31
LARL 117.71 12.32 2.03 192,654 10.47 10.47 1.58 0.40 1.35 1.35 13.39
NFSL 127.15 14.63 2.46 160,656 11.58 11.51 1.84 0.42 1.89 1.87 17.69
PLE 110.20 8.19 4.03 194,311 7.71 7.45 1.53 0.43 0.77 0.87 10.29
SFED 75.48 11.00 - 166,529 14.57 14.57 NA 0.20 0.53 0.68 5.07
SHEN 100.63 14.43 1.93 332,121 14.34 14.34 1.31 0.35 0.96 0.97 6.74
SJSB 106.76 13.07 2.03 143,857 12.25 12.25 NA 0.25 0.68 0.69 5.67
WVFC 102.61 6.02 1.88 230,276 15.62 15.62 1.67 0.56 1.18 2.12 7.77
Maximum 163.55 16.02 4.03 334,297 15.62 15.62 1.84 0.56 1.89 2.12 17.69
Minimum 75.48 7.32 - 135,582 7.71 7.36 0.55 0.12 0.53 0.58 4.70
Average 110.00 11.74 2.04 220,944 11.35 11.19 1.26 0.32 0.94 1.07 8.94
Median 104.69 11.80 2.03 212,220 11.45 11.38 1.31 0.34 0.88 0.91 7.75
CFFC 117.72 16.10 2.20 157,766 13.68 13.68 1.64 0.42 1.34 1.37 10.20
UFRM 114.64 9.62 2.58 246,918 8.39 8.39 0.73 0.21 1.00 1.08 12.75
COOP 106.85 8.73 - 311,843 9.33 8.27 0.56 0.11 0.32 0.23 3.62
COSB 123.02 16.87 1.91 328,880 14.33 13.80 0.77 0.19 0.68 0.57 4.73
FTF 88.92 18.39 3.00 161,785 20.69 20.69 NA 0.39 1.55 1.80 NA
JEBC 20.59 15.79 1.57 265,870 13.09 13.09 1.29 0.23 1.01 0.74 8.35
</TABLE>
13
<PAGE>
Table III.4 - Comparable Selection (Continued)
<TABLE>
<CAPTION>
ROACE Loans
Before NPAs/ Loans/ Loans/ Deposits/ Borrowings/ Serviced
Extra Merger Current Assets Deposits Assets Assets Assets For Others
(%) Target? Pricing (%) (%) (%) (%) (%) ($000)
Mst RctQ (Y/N) Date Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC 9.24 N 03/15/96 1.42 106.37 84.80 79.73 10.32 -
FIBC 7.08 N 03/15/96 2.78 64.21 49.99 77.86 9.56 11,417
FLAG 10.05 N 03/15/96 2.02 83.70 63.79 76.21 11.96 255,901
FOBC 8.46 N 03/15/96 0.23 50.07 36.18 72.26 14.37 11,783
FSBI 7.36 N 03/15/96 0.65 51.78 44.23 85.42 6.26 7,533
LARL 12.97 N 03/15/96 0.77 90.32 76.08 84.23 3.28 1,324
NFSL 16.31 N 03/15/96 0.67 101.67 80.73 79.40 8.12 128,873
PLE 11.32 N 03/15/96 0.27 74.70 62.64 83.85 7.13 98,857
SFED 4.76 N 03/15/96 0.60 72.67 60.95 83.87 - 4,918
SHEN 6.84 N 03/15/96 0.50 90.70 69.48 76.60 8.03 699
SJSB 5.56 N 03/15/96 NA 81.35 61.56 75.68 10.95 NA
WVFC 14.03 N 03/15/96 0.75 83.05 61.84 74.45 7.82 747
Maximum 16.31 2.78 106.37 84.80 85.42 14.37 255,901
Minimum 4.76 0.23 50.07 36.18 72.26 - -
Average 9.50 0.97 79.22 62.69 79.13 8.15 47,459
Median 8.85 0.67 82.20 62.24 78.63 8.08 7,533
CFFC 10.20 N 03/15/96 0.27 128.08 89.16 69.61 15.85 11,474
UFRM 13.68 N 03/15/96 0.08 65.64 58.58 89.24 - 494,000
COOP 2.48 N 03/15/96 0.18 86.92 75.28 86.60 3.24 73,843
COSB 4.04 Y 03/15/96 0.32 62.27 47.95 77.00 8.18 35,389
FTF 8.78 N 03/15/96 0.22 99.72 77.69 77.90 - 24,143
JEBC 5.75 N 03/15/96 0.54 27.54 23.73 86.16 - 5,331
</TABLE>
Source: SNL and F&C Calculations
14
<PAGE>
SECTION IV
CORRELATION OF MARKET VALUE
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
IV. CORRELATION OF MARKET VALUE
MARKETABILITY & LIQUIDITY OF STOCK TO BE ISSUED
Certain factors must be considered to determine whether adjustments are
required in correlating Home Saving's market value to the comparative group.
Those factors include financial aspects, market area, management, dividends,
liquidity, thrift equity market conditions, and subscription interest.
This section addresses the aforementioned factors and the estimated pro
forma market value of the to-be-issued common shares and compares the resulting
market value of the Bank to the members of its comparative group and the
selected group of publicly held thrifts.
Financial Aspects
Section III includes a discussion regarding a comparison of Home Saving's
earnings, balance sheet characteristics, and risk factors with its comparative
group. Table III.2 presents a comparison of certain key indicators, and Table
III.3 presents certain key indicators on a pro forma basis after conversion.
As shown in Table III.2, from an earnings viewpoint, Home Savings is
comparable to its comparative group in return on assets and core income as a
percentage of average assets. Home Saving's net interest income, as a percent of
assets, is lower than that of the comparatives--3.19% for Home Savings versus
3.55% for the comparatives. After Home Savings completes its stock conversion,
its return on average assets and core income as a percentage of average assets
should increase. Table III.3 projects that Home Savings will be
1
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
on par with or slightly exceed the group in return on assets with .99% at the
midpoint, versus a mean of .95% and median of .88% for the comparative group.
Home Saving's pro forma equity to assets ratio at the midpoint is 25.26%,
versus a mean of 11.12% and median of 11.45% for the comparative group. Home
Saving's pro forma return on equity is significantly lower than that of the
comparative group--3.74% at the midpoint versus a mean of 8.97% and median of
7.76% for the comparative group.
Home Saving's recorded earnings have adjustments for appraisal purposes.
The adjustments displayed below in Table IV.1 were not normal elements of
expenses associated with the calculation of core earnings.
<TABLE>
<CAPTION>
Table IV.1-Appraisal Adjustments to Earnings
<S> <C>
Income for year ended 9/30/95 $ 1,861,000
Less: Income for 6 months ending 3/31/95 (1,223,000)
-----------
Plus: Income for 6 months ending 3/31/96 299,000
-----------
LTM Income 937,000
Reverse Provision for LLL 300,000
Reverse 5 yr. Contribution 150,000
Normal Annual Contribution (38,000)
-----------
Tax Effect of Adjustments (152,000)
-----------
Adjustments 260,000
-----------
Appraisal Earnings $1,197,000
-----------
</TABLE>
2
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
Home Saving's asset composition is close to that of the comparative group.
From the asset quality risk viewpoint, Home Savings is similar to the
comparative group. Home Savings has a lower level of non performing assets. Home
Saving's loan loss allowance is .41% of net loans, while the comparative group
is 1.02%. Although the reserve for potential loan losses is less than the peer
group, the conservative composition of the loan portfolio, the limited number of
nonperforming assets and the low level of classified assets, coupled with a low
historical loan loss experience seems to confirm the adequacy of Home Saving's
reserves. Its ratio of interest earning assets to interest bearing liabilities
is almost the same as the comparative group, 112.09% for Home Savings and
112.29% for the group. Home Saving's ratio will be much higher than the
comparatives after conversion. Home Saving's interest rate risk is the major
risk factor difference between the Bank and the comparable group. The comparable
group has nominal interest rate risk and Home Saving's interest rate risk is
high by any standards with the one year gap position being a negative 41.56%.
We believe that a slight downward adjustment is necessary relative to
--------------------------
financial aspects of Home Saving's, principally due to the amount of interest
rate risk.
Market Area
Section II describes Home Saving's market area.
We believe that an upward adjustment is required for Home Saving's market
--------------------
area.
Management
Carl M. Hill, the President and CEO joined Home Savings in 1957. He served
the institution in various positions before becoming President and Chief
Executive Officer in
3
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
1974. The Executive vice-president, R. Ronald Swanner, joined the Bank in 1974.
He served in various positions before attaining his current position in 1980.
The principal officers of the institution are well qualified for the positions
that they hold. The Bank's depth of management is such that the institution
would not be in jeopardy upon the loss of a principal officer.
Home Saving's results compare reasonably with the comparative group.
Therefore, Home Saving's management has done the same quality job as its
selected comparatives.
We believe that no adjustment is required for Home Saving's management.
-------------
Dividends
Table III.3 provides dividend information relative to the comparative group
and the thrift industry as a whole. The comparative group is paying a mean yield
on price of 2.04% and a median of 2.05%, while all public thrifts are paying a
mean of 2.20% and median of 2.22%. The Board of Directors of Home Savings has
stated that they will pay a dividend, but the amount of dividend is yet to be
determined.
We believe that a no adjustment is required relative to Home Saving's
-------------
indecision as to the amount of dividend that will be paid.
Liquidity
The Holding Company has never issued capital stock to the public, and as a
result, there is no existing market for the Common Stock. The Holding Company
has applied to list its Common Stock on NASDAQ, and it is anticipated that a
liquid trading market will
4
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
develop. However, there is no assurance that the Commons Stock will be listed or
will trade on NASDAQ.
A public market having the desirable characteristics of depth, liquidity,
and orderliness depends upon the presence in the market place of both willing
buyers and sellers of the Common Stock. These characteristics are not within the
control of the Bank or the market.
The comparative group includes companies with sufficient trading volume to
develop meaningful pricing characteristics for the stock. The market value of
the comparative group ranges from $14.01 million to $47.31 million, with a mean
value of $25.74 million. The midpoint of Home Saving's valuation range is $34.0
million at $10 a share, or 3,400,000 shares. We believe that Home Savings will,
at 3,400,000 shares, develop a trading volume that is comparable to the
comparative group and therein maintain meaningful price characteristics.
We believe that no adjustment is required relative to the liquidity of Home
-------------
Saving's stock.
Thrift Equity Market Conditions
The SNL Thrift Index is summarized in Figure IV.1. As the table
demonstrates, the Thrift Index has performed well since the end of 1990. The
Index has grown as follows: Year ended December 31, 1991--increased 49.0% from
96.6 to 143.9; Year ended December 31, 1992--increased 39.7% to 201.1; Year
ended December 31, 1993--increased 25.6% to 252.5; Year ended December 31,
1994--decreased 3.1% to 244.7; Year ended December 31, 1995--increased 53.9% to
376.5. It is market value weighted with a base value of 100 as of March 31,
1984.
5
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
As shown in Figure IV.2, which is a graph of the SNL Thrift Index covering
from January 31, 1994 through April 30, 1996, the market, as reflected by the
index, has experienced fluctuations. It dipped in the latter part of 1994 but
recovered during the first quarter of 1995. During 1995, the Index continued a
more robust increase and moved from 244.7% at year end 1994 to 362.3% by
September 30, 1995, an increase of 48.1%. However, the Index dipped in value,
declining by 2.3% from 362.3 at September 30, 1995, to 354.1 at October 31,
1995. It then recovered to 376.5 from October 31, to December 31, 1995. It then
slipped again to 365.9 at January 12, 1996. Since January of 1996, the index has
traveled in a narrow range. Since January 12, 1996 the index rose to 382.13 at
March 29, 1996, the falling to 377.24 at April 18 and April 30, 1996.
It is important to review the salient factors that were involved in the
market fluctuations forward, from 1994. From the end of January 1994 until late
March/early April, the market was experiencing a sell-off due to fears of rising
interest rates. On May 17, 1994, the Federal Reserve increased rates one half of
one percent. The market responded favorably to the increase, as fears of
inflation seemed to be alleviated. By the end of August, the index was 287.2, or
11.1% higher than in January. The market began to demonstrate nervousness over
rates and dropped significantly in anticipation of, and later as a result of,
the three quarters of one percent rate hike in November 1994. Thrift Equities
and all interest sensitive stocks dropped in value as investors worried about
narrowing margins, interest rate risk and continued profitability. November saw
the low point in that cycle, and equities have since staged a rebound.
6
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
The post November 1994 rise in the market can be attributed to several
factors. The sharp decline in prices between August and November could be
attributed to concerns over profits, interest rate risk, and inflation. The
recovery in value since then can be attributed to the fact that inflationary
concerns were dispelled, thrift profits did not decline as much as anticipated,
the industry was better prepared to manage interest rate risk than expected, and
many of the stocks were simply undervalued. The perception that the thrift
equities may have been undervalued, coupled with the continuing trend toward
consolidation in the financial services industry and the premiums being paid for
targets of consolidation, obviously had a positive impact on the prices and the
Index. The Index ended the year at 244.7.
From the end of 1994 through September 1995, the Index steadfastly rose,
before dipping 2.3% during the month of October, then recovering 6.3% from then
to December 31. It then increased 1.75% from January 31, 1996, to April, 1996.
The increase in the SNL Index, in general, has been parallel with the increases
in other equity markets. One difference, however, is notable. In other markets,
increased prices are responding to improved profits, with price to earnings
ratios decreasing as earnings potentials were neared. The thrift IPO market is
still affected to some degree by speculation that the majority of the
institutions will become viable consolidation candidates and sell at some
expanded multiple of book value. However, in the recent past, the market has
demonstrated some resistance to excessive price to pro forma book values. This
resistance may be due in part to two things; 1) the decreasing number of mergers
and acquisitions; and 2) the increasing price to pro forma earnings ratios.
7
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
Investors are still willing to purchase stocks with high price earnings ratios,
but only when there is an offset in the price to pro forma book value.
NORTH CAROLINA ACQUISITIONS
Table IV.2 provides information relative to acquisitions of financial
institutions in Arkansas between January 1, 1995 and April 30, 1996. There were
three thrift acquisitions and 7 bank acquisitions announced during that time
frame. Bank acquisitions in North Carolina since January 1, 1995, have averaged
275.56% of tangible book value and 22.88 times earnings. The median price has
been 274.08% of tangible book value and 21.94 times earnings. Thrifts generally
sell at lower price/book and price/earnings multiples than do banks. Thrifts in
North Carolina during that period have averaged 166.61% of tangible book value
and 27.49 times earnings. The median price was 160.35% of tangible book value
and 20.72 times earnings.
In aggregate, thrift and bank acquisitions had an average price/tangible
book of 22.8.87% of book and a median price/tangible book of 236.45. The average
final deal on a price to 4 quarters EPS was 24.85 and the median was 20.72.
These prices and the multiples of earnings explain well why IPO issues have done
so well in North Carolina. Speculation that the converting thrift will place
itself in play as soon as possible is well founded.
8
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
Figure IV.1
<TABLE>
<CAPTION>
Date Index [GRAPH APPEARS HERE]
------------------------
<S> <C>
31-Dec-90 96.60
31-Dec-91 143.90
31-Dec-92 201.10
31-Dec-93 252.50
31-Dec-94 244.70
31-Dec-95 376.51
</TABLE>
Figure IV.2 [GRAPH APPEARS HERE]
SNL Index
---------
Date Index
==================
1/31/94 258.47
2/28/94 249.53
3/31/94 241.57
4/29/94 248.31
5/31/94 263.34
6/30/94 269.58
7/29/94 276.69
8/31/94 287.18
9/30/94 279.69
10/31/94 236.12
11/30/94 245.84
12/30/94 244.73
1/31/95 236.10
2/28/95 277.00
3/31/95 278.40
4/28/95 293.44
5/31/95 307.60
6/23/95 313.95
7/31/95 328.20
8/31/95 355.50
9/29/95 362.29
10/31/95 354.05
11/15/95 360.83
11/30/95 370.17
12/15/95 371.78
12/29/95 376.51
1/12/96 363.91
1/31/95 370.69
2/14/96 374.46
2/29/96 373.64
3/15/96 370.32
3/29/96 382.13
4/18/96 377.24
4/30/96 377.24
<TABLE>
<CAPTION>
Percent Change Since
====================================================================
SNL Prev.
Date Index Date 12/31/94 1/31/96
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 244.7
3/31/95 278.4 13.77% 13.77%
6/30/95 313.5 12.61.% 28.12%
9/30/95 362.3 15.57% 48.06%
10/31/95 354.1 -2.26% 44.71%
11/30/95 370.2 4.55% 51.29%
12/31/95 376.5 1.70% 53.86%
1/12/96 372.4 -1.09% 52.19%
1/31/96 370.7 -0.46% 51.49%
2/14/96 374.5 1.03% 53.04% 1.03%
2/29/96 373.6 -0.24% 52.68% 0.78%
3/15/96 370.5 -0.83% 51.41% -0.05%
3/29/96 382.1 3.13% 56.15% 3.08%
4/18/96 377.2 -1.28% 54.15% 1.75%
4/30/96 377.2 0.00% 54.15% 1.75%
====================================================================
</TABLE>
9
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
EFFECT OF INTEREST RATES ON THRIFT STOCK
The current interest rate environment and the anticipated rate environment
will affect the pricing of thrift stocks and all other interest sensitive
stocks. As the economy continues to lose momentum, the fear of inflation can,
and has to a degree been replaced by economic uncertainty. The Federal Reserve,
in its resolve to curb inflation, has increased rates in the recent past but has
more recently relented to vagaries of the economy and decreased rates in an
attempt to stimulate what is currently perceived as a fragile and irresolute
economy. Recent gains in thrift stocks could reverse if there were an abatement
of the merger and consolidation activity, or if rates were to begin to rise
sharply.
What is likely to happen in the short to intermediate term is that rates
will float around current levels, and trending upward. The yield curve will
continue to normalize. A slowly increasing yield curve will do little for the
profit potential of the financial services industry in general and thrifts
specifically. The spreads will narrow if the cost of funds associated with
deposits continues to rise.
As clearly illustrated, the SNL Thrift Index has performed well over the
last five years. It moved in tandem with all interest sensitive stocks and
reflected the weakness in the market as investors began to consider the
importance of recent increases in rates and their impact on the net interest
margins of thrifts. The clear implication is that rising interest rates will
have a negative impact on earnings.
Figure IV.3 graphically displays the rate environment during the last six
months. Changes in short term rates and greater changes in the long term rates
have produced a
10
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
more normal yield curve. Yield spreads between the T-Bills, T-Notes, and T-Bonds
have increased. Mortgage rates follow closely the long term government
obligations, therefore, mortgage rates are likely to increase in the near term.
Increased cost of funds will serve to narrow the net interest margins of
thrifts. A thrift's ability to maintain net interest margins through business
cycles is important to investors, unless thrifts can offset the decline in net
interest income by other sources of revenue or reductions in noninterest
expense. The former is difficult and the latter is unlikely.
Home Savings, with its interest rate risk management position, is more
vulnerable than most to rising rates.
During 1993, conversion stocks often experienced first day 30% or more
increases in value. However, as Table IV.3 shows, recent price appreciation has
not been as robust. Table IV.3 provides information on 43 conversions completed
since September 30, 1995. The average change in price since conversion is a gain
of 17.46% and the median change is a gain of 15.00%. Within that group, 38 have
increased in value to as much as 51.25% and two have experienced no price
change, and three have decreased in value. The average increase in value at one
day, one week, and one month after conversion has been 16.27%, 16.63%, and
16.61%, respectively. The median increase in value at one day, one week, and one
month after conversion has been 16.25%, 16.25%, and 17.08%, respectively.
Because of the lack of complete earnings information on recent conversions,
a meaningful comparison of the price earnings ratios is difficult to make.
However, there is
11
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
sufficient information to review the price to book ratio. The average price-to-
book ratio, as of April 30, 1996, is 88.24% and the median is 86.39%. That
compares to the offering price to pro forma book, where the average was 71.74%
and the median was 71.5%.
We believe a downward adjustment is required for the new issue discount.
-------------------
12
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
Figure IV.3
<TABLE>
<CAPTION>
Interest Rates from November 17, 1995 through May 3, 1996
======================================================================
1 Year 5 Year 10 Year 30 Year
Fed Fds() T-bill Treas. Treas. Treas.
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
11/17/95 5.74 5.42 5.71 5.96 6.26
12/1/95 5.91 5.39 5.59 5.82 6.17
12/15/95 5.73 5.34 5.55 5.72 6.04
12/29/95 5.48 5.30 5.44 5.64 5.97
1/26/96 5.44 5.03 5.35 5.64 6.00
2/23/96 5.17 5.02 5.52 5.97 6.35
3/15/96 5.24 5.39 6.02 6.35 6.69
3/22/96 5.36 5.43 6.08 6.36 6.72
3/29/96 5.22 5.41 6.08 6.32 6.70
4/5/96 5.30 5.41 6.06 6.26 6.68
4/12/96 5.08 5.61 6.42 6.60 6.96
4/19/96 5.24 5.50 6.32 6.52 6.88
4/26/96 5.24 5.50 6.31 6.53 6.88
5/3/96 5.30 5.60 6.37 6.64 6.96
</TABLE>
(*)Seven-day average for week ending two days earlier than date shown.
======================================================================
[GRAPH APPEARS HERE]
13
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
Adjustments Conclusion
<TABLE>
<CAPTION>
Table IV.4 - Adjustments Summary
- --------------------------------------------------------------------------------
No Change Upward Down
<S> <C> <C> <C>
Financial Aspects X
Market Area X
Management X
Dividends X
Liquidity X
Thrift Equity Market Conditions X
- --------------------------------------------------------------------------------
</TABLE>
Valuation Approach
Typically, investors rely on the price/earnings ratio as the most
appropriate indicator of value. We consider price/earnings to be one of the
important pricing methods in valuing a thrift stock. Price/book is a well
recognized yardstick for measuring the value of financial institution stocks in
general. Another method of viewing thrift values is price/assets, which is more
meaningful in situations where the subject is thinly capitalized. Given the
healthy condition of the thrift industry today, more emphasis is placed on
price/earnings and price/book. Generally, price/earnings and price/book should
be considered in tandem.
Table III.3 presents Home Saving's pro forma ratios and compares them to
the ratios of its comparative group and the publicly held thrift industry as a
whole. Home Saving's earnings for the twelve months ended March 31, 1990, were
approximately $1,197,000, after the adjustments that were required to determine
appraisal earnings. The Bank projects modest growth.
14
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
The comparative group traded at an average of 13.88 times earnings at April
30, 1996, and at 108.80% of book value. The comparative group traded at a median
of 13.37 times earnings and a median of 101.55% of book value. At the midpoint
of the valuation range, Home Savings is priced at 18.38 times earnings and
68.77% of book value. At the maximum end of the range, Home Savings is priced at
20.05 times earnings and 72.64% of book value. At the supermaximum, Home Savings
is priced at 21.77 times earnings and 76.39% of book value.
The midpoint valuation of $34,000,000 represents a premium of 32.42% (see
Table IV.5) above the average and a premium of 37.47% above the median of the
comparative group on a price/earnings basis. The price/book ratio for Home
Savings at the midpoint represents a discount of 36.79% from the comparative
group's mean and 32.28% from the median price/book ratio.
The maximum valuation of $39,100,000 represents a premium of 33.24% above
the average and 28.47% above the median of the comparative group on a
price/earnings basis. The price/book ratio for Home Savings at the maximum
represents a discount of 44.24% from the average and 28.47% from the median of
the comparative group.
15
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
Table IV.5 - Pricing Comparisons
<TABLE>
<CAPTION>
Group Percent Premium
Home Compared to (Discount) Versus
Savings Averag Median Averag Median
Comparison of PE Ratio at
Midpoint to:
<S> <C> <C> <C> <C> <C>
Comparative Group 18.38 13.88 13.37 32.42 37.47
North Carolina Thrifts 18.38 14.28 12.32 28.71 49.19
Southest Region Thrifts 18.38 14.30 13.64 28.53 34.75
All Public Thrifts 18.38 13.92 13.44 32.04 36.76
Comparison of PB Ratio at
Midpoint to:
Comparative Group 68.77 108.80 101.55 (36.79) (32.28)
North Carolinaa Thrifts 68.77 102.35 106.61 (32.81) (35.49)
Southest Region Thrifts 68.77 121.93 116.84 (43.60) (41.14)
All Public Thrifts 68.77 113.78 108.77 (39.56) (36.77)
Comparison of PE Ratio at
Maximum to:
Comparative Group 20.02 13.88 13.37 44.24 49.74
North Carolina Thrifts 20.05 14.28 12.32 40.41 62.74
Southest Region Thrifts 20.05 14.30 13.64 40.21 46.99
All Public Thrifts 20.05 13.92 13.44 44.04 49.18
Comparison of PB Ratio at
Maximum to:
Comparative Group 72.64 108.80 101.55 (33.24) (28.47)
North Carolinaa Thrifts 72.64 102.35 106.61 (29.03) (31.86)
Southest Region Thrifts 72.64 121.93 116.84 (40.42) (37.83)
All Public Thrifts 72.64 113.78 108.77 (36.16) (33.22)
</TABLE>
16
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
Valuation Conclusion
We believe that as of April 30, 1996, the estimated pro forma market value
of Home Savings was $34,000,000. The resulting valuation range was $28,900,000
at the minimum to $39,100,000 at the maximum, based on a range of 15% below and
15% above the midpoint valuation. The supermaximum is $44,970,000 based on 1.15
times the maximum. Pro forma comparisons with the comparative group are
presented in Table III.3 based on calculations shown in Exhibit VIII.
17
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
Table IV.2 - North Carolina Acquisitions
<TABLE>
<CAPTION>
Whole-Bank and Whole-Thrift Acquisitions in North Carolina (10) Announced Since Jan. 1, 1995
Buyer: Seller:
1:Total 1:Total
Bank/ Bank/ Assets Assets Announce
Buyer ST Thrift Seller ST Thrift ($000) ($000) Date Status
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity BancShares NC Bank Perpetual State Bank NC Bank 390,560 45,939 04/22/96 Pending
Centura Banks NC Bank FirstSouth Bank NC Bank 5,546,199 169,354 04/18/96 Pending
Centura Banks NC Bank First Community Bank NC Bank 5,326,372 112,355 03/20/96 NonBinding
Centura Banks NC Bank First Comm'l Holding NC Bank 5,081,635 174,562 11/28/95 Completed
United Carolina Bncs NC Bank Triad Bank NC Bank 3,742,780 199,237 10/19/95 Completed
First Charter Corp NC Bank Bank of Union NC Bank 337,597 126,343 09/13/95 Completed
First Citizens BcShs NC Bank Allied Bank Capital NC Thrift 6,913,464 268,654 08/07/95 Completed
United Carolina Bncs NC Bank Seaboard Svgs Bk SSB NC Thrift 3,742,780 47,100 07/24/95 Completed
First Union Corp NC Bank RS Financial Corp NC Thrift 77,854,608 809,772 05/30/95 Completed
Triangle Bancorp NC Bank Village Bank NC Bank 322,995 64,308 05/04/95 Completed
Maximum 77,854,608 809,772
Minimum 322,995 45,939
Average 10,925,899 201,762
Median 4,412,208 147,849
Note: Buyer and Seller Assets are as of Announcement
Date.
</TABLE>
<TABLE>
<CAPTION>
Ann'd Ann'd
Ann'd Ann'd
Completed/ Deal Deal Deal Pr/ Deal Pr/
Bank/ Bank/ Terminated Value Pr/Bk Tg Bk 4-Qtr
Buyer ST Thrift Seller ST Thrift Date ($M) (%) (%) EPS(x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity BancShares NC Bank Perpetual State Bank NC Bank NA 11.10 115.06 115.06 46.05
Centura Banks NC Bank FirstSouth Bank NC Bank NA 36.60 226.52 241.15 21.68
Centura Banks NC Bank First Community Bank NC Bank NA 28.20 241.53 241.53 20.96
Centura Banks NC Bank First Comm'l Holding NC Bank 02/28/96 54.20 287.13 288.29 18.63
United Carolina Bncs NC Bank Triad Bank NC Bank 03/29/96 37.50 250.81 250.81 20.44
First Charter Corp NC Bank Bank of Union NC Bank 12/21/95 32.60 303.90 308.20 22.90
First Citizens BcShs NC Bank Allied Bank Capital NC Thrift 02/21/96 66.30 186.04 186.04 19.60
United Carolina Bncs NC Bank Seaboard Svgs Bk SSB NC Thrift 01/25/96 8.70 146.74 146.74 35.22
First Union Corp NC Bank RS Financial Corp NC Thrift 01/11/96 111.60 161.71 169.19 19.93
Triangle Bancorp NC Bank Village Bank NC Bank 11/01/95 9.80 219.92 219.92 32.50
111.60 303.90 308.20 46.05
Maximum 8.70 115.06 115.06 18.63
Minimum 39.66 213.94 216.69 25.79
Average 34.60 223.22 230.54 21.32
Median
</TABLE>
<TABLE>
<CAPTION>
Table IV.2-North Carolina Acquisitions
Final Final Final Final
Deal Deal Deal/Pr Deal/Pr
Bank/ Bank/ Value Pr/Bk Tg Bk 4-Qtr
Buyer ST Thrift Seller ST Thrift ($M) (%) (%) EPS(x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fidelity BancShares NC Bank Perpetual State Bank NC Bank NA NA NA NA
Centura Banks NC Bank FirstSouth Bank NC Bank NA NA NA NA
Centura Banks NC Bank First Community Bank NC Bank NA NA NA NA
Centura Banks NC Bank First Comm'l Holding NC Bank 54.90 291.35 292.53 18.90
United Carolina Bncs NC Bank Triad Bank NC Bank 37.80 238.58 238.58 18.57
First Charter Corp NC Bank Bank of Union NC Bank 35.40 329.94 334.68 24.97
First Citizens BcShs NC Bank Allied Bank Capital NC Thrift 69.60 188.62 188.62 20.72
United Carolina Bncs NC Bank Seaboard Svgs Bk SSB NC Thrift 9.60 160.35 160.35 42.67
First Union Corp NC Bank RS Financial Corp NC Thrift 106.60 145.27 150.87 19.07
Triangle Bancorp NC Bank Village Bank NC Bank 11.10 236.45 236.45 29.08
Maximum 106.60 329.94 334.68 42.67
Minimum 9.60 145.27 150.87 18.57
Average 46.43 227.22 228.87 24.85
Median 37.80 236.45 236.45 20.72
</TABLE>
18
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
<TABLE>
<CAPTION>
Table IV.3 - Recent Conversions
Since September 30, 1995
Price/ Price/
Conversion Gross Offering Pro-Forma Pro-Forma
Assets Proceeds Price Book Value Earnings
Ticker Short Name State IPO Date ($000) ($000) ($) (%) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DFIN Damen Financial Corp. IL 10/02/95 191,500 39,675 10.00 73.00 36.80
FDEF First Defiance Financial OH 10/02/95 NA NA NA NA NA
SFIN Statewide Financial Corp. NJ 10/02/95 475,168 52,698 10.00 76.40 9.40
HFFB Harrodsburg First Fin Bancorp KY 10/04/95 92,715 21,821 10.00 73.70 14.00
KFBI Klamath First Bancorp OR 10/05/95 455,111 122,331 10.00 75.50 13.40
SRN Southern Banc Company, Inc AL 10/05/95 100,564 14,548 10.00 66.10 30.10
TPNZ Tappan Zee Financial, Inc. NY 10/05/95 91,149 16,201 10.00 74.00 12.30
CSBF CSB Financial Group, Inc. IL 10/09/95 34,431 8,280 8.00 66.50 14.30
BFD BostonFed Bancorp, Inc. MA 10/24/95 592,027 65,896 10.00 74.50 93.40
ITLA Imperial Thrift and Loan CA 10/24/95 NA NA NA NA NA
ANBK American National Bancorp MD 10/31/95 NA NA NA NA NA
FWWB First SB of Washington Bancorp WA 11/01/95 491,368 109,106 10.00 73.10 13.70
FFIC Flushing Financial Corp NY 11/21/95 604,230 99,188 11.50 73.20 35.80
PBIX Patriot Bank Corp. PA 12/04/95 229,300 37,691 10.00 71.00 18.00
PDB Piedmont Bancorp, Inc. NC 12/08/95 95,094 26,450 10.00 71.50 14.10
AHCI Ambanc Holding Co., Inc. NY 12/27/95 344,856 54,223 10.00 72.00 22.10
JOAC Joachim Bancorp, Inc. MO 12/28/95 30,711 7,604 10.00 72.00 18.80
CBSB Charter Financial, Inc. IL 12/29/95 NA NA NA NA NA
CLAS Classic Bancshares, Inc. KY 12/29/95 60,911 13,225 10.00 69.30 17.20
HFNC HFNC Financial Corp. NC 12/29/95 591,319 171,925 10.00 71.20 15.80
PEEK Peekskill Financial Corp. NY 12/29/95 155,716 40,998 10.00 70.80 14.10
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NA NA NA NA NA
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 196,394 30,418 10.00 71.40 31.90
BYFC Broadway Financial Corp. CA 01/09/96 102,512 8,927 10.00 68.50 13.30
FFOH Fidelity Financial of Ohio OH 03/04/96 NA NA NA NA NA
FFFD North Central Bancshares, Inc. IA 03/21/96 NA NA NA NA NA
CFTP Community Federal Bancorp MS 03/26/96 162,042 46,288 10.00 71.40 14.00
GAF GA Financial, Inc. PA 03/26/96 476,259 89,000 10.00 70.50 13.80
FCB Falmouth Co-Operative Bank MA 03/28/96 73,735 14,548 10.00 68.70 19.90
CRZY Crazy Woman Creek Bancorp WY 03/29/96 37,510 10,580 10.00 69.70 16.40
PFFB PFF Bancorp, Inc. CA 03/29/96 1,899,412 198,375 10.00 69.00 26.60
AMFC AMB Financial Corp. IN 04/01/96 68,851 11,241 10.00 70.80 18.20
FBER 1st Bergen Bancorp NJ 04/01/96 223,167 31,740 10.00 74.80 21.70
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 NA NA NA NA NA
LONF London Financial Corporation OH 04/01/96 34,152 5,290 10.00 68.50 22.40
</TABLE>
<TABLE>
<CAPTION>
Price/ Current Current Current
Adjusted Stock Price/ Price/Tang
Assets Price Book Value Book Value
Ticker Short Name State IPO Date (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
DFIN Damen Financial Corp. IL 10/02/95 17.20 11.50 79.86 79.86
FDEF First Defiance Financial OH 10/02/95 NA 10.75 88.40 88.40
SFIN Statewide Financial Corp. NJ 10/02/95 10.00 12.38 90.20 90.46
HFFB Harrodsburg First Fin Bancorp KY 10/04/95 19.10 13.88 89.57 89.57
KFBI Klamath First Bancorp OR 10/05/95 21.20 13.75 92.72 92.72
SRN Southern Banc Company, Inc AL 10/05/95 12.60 12.50 80.54 81.43
TPNZ Tappan Zee Financial, Inc. NY 10/05/95 15.10 12.00 86.39 86.39
CSBF CSB Financial Group, Inc. IL 10/09/95 19.40 9.13 74.19 74.19
BFD BostonFed Bancorp, Inc. MA 10/24/95 10.00 12.38 83.73 83.73
ITLA Imperial Thrift and Loan CA 10/24/95 NA 14.38 145.94 145.94
ANBK American National Bancorp MD 10/31/95 NA 10.13 78.55 78.55
FWWB First SB of Washington Bancorp WA 11/01/95 18.20 15.13 99.18 99.18
FFIC Flushing Financial Corp NY 11/21/95 14.10 15.75 98.13 98.13
PBIX Patriot Bank Corp. PA 12/04/95 14.10 13.00 84.03 84.03
PDB Piedmont Bancorp, Inc. NC 12/08/95 21.80 13.50 96.09 96.09
AHCI Ambanc Holding Co., Inc. NY 12/27/95 13.60 9.50 67.76 67.76
JOAC Joachim Bancorp, Inc. MO 12/28/95 19.80 12.50 88.78 88.78
CBSB Charter Financial, Inc. IL 12/29/95 NA 11.63 90.26 92.78
CLAS Classic Bancshares, Inc. KY 12/29/95 17.80 11.25 76.22 76.22
HFNC HFNC Financial Corp. NC 12/29/95 22.50 14.00 98.87 98.87
PEEK Peekskill Financial Corp. NY 12/29/95 20.80 11.56 80.73 80.73
FFBA First Colorado Bancorp, Inc. CO 01/02/96 NA 12.13 100.87 102.15
LFBI Little Falls Bancorp, Inc. NJ 01/05/96 13.40 11.00 77.14 83.91
BYFC Broadway Financial Corp. CA 01/09/96 8.00 10.38 NA NA
FFOH Fidelity Financial of Ohio OH 03/04/96 NA 10.00 80.19 80.19
FFFD North Central Bancshares, Inc. IA 03/21/96 NA 10.63 NA NA
CFTP Community Federal Bancorp MS 03/26/96 22.20 12.75 NA NA
GAF GA Financial, Inc. PA 03/26/96 15.70 11.13 77.58 77.58
FCB Falmouth Co-Operative Bank MA 03/28/96 16.50 10.75 NA NA
CRZY Crazy Woman Creek Bancorp WY 03/29/96 22.00 10.50 NA NA
PFFB PFF Bancorp, Inc. CA 03/29/96 9.50 11.50 NA NA
AMFC AMB Financial Corp. IN 04/01/96 14.00 10.63 NA NA
FBER 1st Bergen Bancorp NJ 04/01/96 12.50 9.63 NA NA
JXVL Jacksonville Bancorp, Inc. TX 04/01/96 NA 10.00 NA NA
LONF London Financial Corporation OH 04/01/96 13.40 10.13 NA NA
</TABLE>
19
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
<TABLE>
<CAPTION>
Price/
Conversion Gross Offering Pro-Forma
Assets Proceeds Price Book Value
Ticker Short Name State IPO Date ($000) ($000) ($) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
PHFC Pittsburgh Home Financial Corp PA 04/01/96 157,570 21,821 10.00 72.80
SSB Scotland Bancorp, Inc NC 04/01/96 57,718 18,400 10.00 74.80
SSM Stone Street Bancorp, Inc. NC 04/01/96 84,996 27,376 15.00 74.90
WHGB WHG Bancshares Corp. MD 04/01/96 85,027 16,201 10.00 71.10
GSFC Green Street Financial Corp. NC 04/04/96 151,028 42,981 10.00 71.00
CATB Catskill Financial Corp NY 04/18/96 230,102 56,868 10.00 71.90
YFCB Yonkers Financial Corporation NY 04/18/96 208,283 35,708 10.00 74.90
RELI Reliance Bancshares, Inc. WI 04/19/96 32,260 20,499 8.00 72.50
Maximum 1,899,412 198,375 15.00 76.40
Minimum 30,711 5,290 8.00 66.10
Average 254,777 45,375 10.07 71.74
Median 155,716 30,418 10.00 71.50
</TABLE>
<TABLE>
<CAPTION>
Price/ Price/ Current Current Current
Pro-Forma Adjusted Stock Price/ Price/Tang
Earnings Assets Price Book Value Book Value
Ticker Short Name State IPO Date (x) (%) ($) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PHFC Pittsburgh Home Financial Corp PA 04/01/96 17.50 12.20 10.69 NA NA
SSB Scotland Bancorp, Inc NC 04/01/96 16.20 24.20 11.75 NA NA
SSM Stone Street Bancorp, Inc. NC 04/01/96 19.70 24.40 17.50 NA NA
WHGB WHG Bancshares Corp. MD 04/01/96 15.50 16.00 11.38 NA NA
GSFC Green Street Financial Corp. NC 04/04/96 14.80 22.20 12.25 NA NA
CATB Catskill Financial Corp NY 04/18/96 19.00 19.80 10.63 NA NA
YFCB Yonkers Financial Corporation NY 04/18/96 16.10 14.60 10.00 NA NA
RELI Reliance Bancshares, Inc. WI 04/19/96 22.50 38.90 8.38 NA NA
Maximum 93.40 38.90 17.50 145.94 145.94
Minimum 9.40 8.00 8.38 67.76 67.76
Average 20.94 17.34 11.73 88.24 88.71
Median 17.20 16.50 11.50 86.39 86.39
</TABLE>
20
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
<TABLE>
<CAPTION>
Price One Price One Price One % Increase % Increase % Increase % Increase
Day After Week After Month After Day After Week After Month After To
Conversion Conversion Conversion Conversion Conversion Conversion Date
Ticker ($) ($) ($) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
DFIN 11.50 11.38 11.75 15.00 13.75 17.50 15.00
FDEF 10.44 10.31 10.00 N/A N/A N/A N/A
SFIN 13.25 13.13 12.63 32.50 31.25 26.25 23.75
HFFB 12.50 12.38 13.13 25.00 23.75 31.25 38.75
KFBI 12.50 12.88 12.88 25.00 28.75 28.75 37.50
SRN 12.38 12.50 12.50 23.75 25.00 25.00 25.00
TPNZ 11.63 11.50 12.00 16.25 15.00 20.00 20.00
CSBF 9.00 9.25 9.13 12.50 15.63 14.06 14.06
BFD 12.00 12.00 11.75 20.00 20.00 17.50 23.75
ITLA 11.38 11.50 12.00 N/A N/A N/A N/A
ANBK 9.63 9.63 9.63 N/A N/A N/A N/A
FWWB 12.44 12.69 13.13 24.40 26.90 31.25 51.25
FFIC 14.22 14.13 14.25 23.64 22.83 23.91 36.96
PBIX 12.75 12.75 12.88 27.50 27.50 28.75 30.00
PDB NA 12.88 12.50 N/A 28.75 25.00 35.00
AHCI 10.00 10.31 9.88 0 3.10 (1.25) (5.00)
JOAC 13.50 13.00 12.50 35.00 30.00 25.00 25.00
CBSB 10.81 10.88 11.38 N/A N/A N/A N/A
CLAS 11.75 11.75 11.50 17.50 17.50 15.00 12.50
HFNC 13.13 13.38 13.25 31.25 33.75 32.50 40.00
PEEK 12.13 11.75 11.25 21.25 17.50 12.50 15.60
FFBA 11.44 11.63 12.00 N/A N/A N/A N/A
LFBI 11.31 11.38 11.00 13.13 13.75 10.00 10.00
BYFC 10.38 10.25 10.25 3.75 2.50 2.50 3.75
FFOH 10.50 10.00 10.13 N/A N/A N/A N/A
FFFD 10.88 10.69 10.44 N/A N/A N/A N/A
CFTP 12.63 12.88 12.63 26.25 28.75 26.25 27.50
GAF 11.38 11.50 11.00 13.75 15.00 10.00 11.25
FCB 10.75 11.25 10.75 7.50 12.50 7.50 7.50
CRZY NA 10.75 10.50 N/A 7.50 5.00 5.00
PFFB 11.38 11.63 11.63 13.75 16.25 16.25 15.00
AMFC 10.50 10.50 10.63 5.00 5.00 6.25 6.25
FBER 10.00 9.50 9.63 - (5.00) (3.75) (3.75)
JXVL 11.11 9.63 10.00 N/A N/A N/A N/A
LONF 10.81 10.63 10.13 8.12 6.25 1.25 1.25
PHFC 11.00 11.00 10.69 10.00 10.00 6.90 6.90
SSB 12.25 12.50 11.75 22.50 25.00 17.50 17.50
</TABLE>
21
<PAGE>
FERGUSON & CO., LLP Section IV.
- ------------------- -----------
<TABLE>
<CAPTION>
Price One Price One Price One % Increase % Increase % Increase % Increase
Day After Week After Month After Day After Week After Month After To
Conversion Conversion Conversion Conversion Conversion Conversion Date
Ticker ($) ($) ($) (%) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C>
SSM 17.50 18.00 17.50 16.67 20.00 16.67 16.67
WHGB 11.13 11.06 11.38 11.25 10.60 13.75 13.75
GSFC 12.88 12.25 12.25 28.75 22.50 22.50 22.50
CATB 10.38 10.63 NA 3.75 6.25 N/A 6.25
YFCB 9.75 10.13 NA (2.50) 1.25 N/A -
RELI 8.38 8.25 NA 4.69 3.13 N/A 4.69
Maximum 17.50 18.00 17.50 35.00 33.75 32.50 51.25
Minimum 8.38 8.25 9.13 (2.50) (5.00) (3.75) (5.00)
Average 11.54 11.53 11.60 16.27 16.63 16.61 17.46
Median 11.38 11.50 11.56 16.25 16.25 17.08 15.00
</TABLE>
22
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT I
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit I - Ferguson & Co., LLP Qualifications
Ferguson & Co., LLP (F&C), is a financial, economic, and regulatory
consulting firm providing services to financial institutions. It is located in
Irving, Texas. Its services to financial institutions include:
. Mergers and acquisition services
. Business plans
. Fairness opinions and conversion appraisals
. Litigation support
. Operational and efficiency consulting
. Human resources evaluation and management
F&C developed several financial institution databases of information
derived from periodic financial reports filed with regulatory authorities by
financial institutions. For example, F&C developed TAFS and BankSource. TAFS
includes thrifts filing TFR's with the OTS and BankSource includes banks and
savings banks filing call reports with the FDIC. Both databases of information
include information from the periodic reports plus numerous calculations
derived from F&Cs analysis. In addition, both databases are interactive,
permitting the user to conduct merger analysis, do peer group comparisons, and
a number of other items. F&C recently sold its electronic publishing segment
to Sheshunoff Information Services Inc., Austin, Texas.
Brief biographical information is presented below on F&C's principals:
WILLIAM C. FERGUSON, MANAGING PARTNER
- -------------------------------------
Mr. Ferguson has approximately 30 years of experience providing various services
to financial institutions. He was a partner in a CPA firm prior to founding F&C
in 1984. Mr. Ferguson is a frequent speaker for financial institution seminars
and he has testified before Congressional Committees several times on his
analysis of the state of the thrift industry. Mr. Ferguson has a B.A. degree
from Austin Peay University and an M.S. degree from the University of Tennessee.
He is a CPA.
1
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit I - Ferguson & Co., LLP Qualifications
CHARLES M. HEBERT, PRINCIPAL
- ----------------------------
Mr. Hebert has over 30 years of experience providing services to and managing
financial institutions. He spent 7 years as a national bank examiner, 14 years
in bank management, 5 years in thrift management, and has spent the last 7 years
on the F&C consulting staff. Mr. Hebert holds a B.S. degree from Louisiana
State University.
ROBIN L. FUSSELL, PRINCIPAL
- ---------------------------
Mr. Fussell has over 25 years of experience providing professional services to
and managing financial institutions. He worked on the audit staff of a "Big
Six" accounting firm for 12 years, served as CFO of a thrift for 3 years, and
has worked in financial institution consulting for the last 12 years. He is a
co-founder of F&C. He holds a B.S. degree from East Carolina University. He is
a CPA.
2
<PAGE>
EXHIBIT II
<PAGE>
FERGUSON & CO., LLP
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Exhibit II.1 - Southeast Region Thrifts
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date
<S> <C> <C> <C> <C> <C> <C> <C>
AMFB American Federal Bank Greenville SC SE SAIF NASDAQ 01/19/89
BANC BankAtlantic Bancorp, Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83
BFSB Bedford Bancshares, Inc. Bedford VA SE SAIF NASDAQ 08/22/94
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85
CCFH CCF Holding Company Jonesboro GA SE SAIF NASDAQ 07/12/95
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96
CMSV Community Savings, MHC North Palm Beach FL SE SAIF NASDAQ 10/24/94
CNIT CENIT Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 08/06/92
COOP Cooperative Bankshares, Inc. Wilmington NC SE SAIF NASDAQ 08/21/91
COSB CSB Financial Corporation Lynchburg VA SE SAIF NASDAQ 09/28/93
EBCI Eagle Bancorp, Inc. Charleston WV SE SAIF NASDAQ 07/18/88
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86
ESX Essex Bancorp, Inc. Virginia Beach VA SE SAIF AMSE NA
FFBS FFBS BanCorp, Inc. Columbus MS SE SAIF NASDAQ 07/01/93
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94
FFFG F.F.O. Financial Group, Inc. St. Cloud FL SE SAIF NASDAQ 10/13/88
FFFL Fidelity FSB of Florida, MHC West Palm Beach FL SE SAIF NASDAQ 01/07/94
FFLC FFLC Bancorp, Inc. Leesburg FL SE SAIF NASDAQ 01/04/94
FFML First Family Financial Corp. Eustis FL SE SAIF NASDAQ 10/22/92
FFPB First Palm Beach Bancorp, Inc. West Palm Beach FL SE SAIF NASDAQ 09/29/93
FFPC Florida First Bancorp, Inc. Panama City FL SE SAIF NASDAQ 11/06/86
FFRV Fidelity Financial Bankshares Richmond VA SE SAIF NASDAQ 05/01/86
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ 02/11/87
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95
FPRY First Financial Bancorp Tallahassee FL SE SAIF NASDAQ 03/29/88
FSFC First Southeast Financial Corp Anderson SC SE SAIF NASDAQ 10/08/93
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96
GSLC Guaranty Financial Corp. Charlottesville VA SE SAIF NASDAQ NA
HARB Harbor Federal Savings Bk, MHC Fort Pierce FL SE SAIF NASDAQ 01/06/94
HFNC HFNC Financial Corp. Charlotte NC SE SAIF NASDAQ 12/29/95
</TABLE>
<TABLE>
<CAPTION>
Current Current Current
Stock Market Price/ Price/
Price Value LTM Core EPS Book Value
Ticker Short Name ($) ($M) (x) (%)
<S> <C> <C> <C> <C> <C>
AMFB American Federal Bank 15.750 171.73 9.91 160.71
BANC BankAtlantic Bancorp, Inc. 15.750 184.95 12.30 138.40
BFSB Bedford Bancshares, Inc. 17.375 20.43 13.90 103.05
BKUNA BankUnited Financial Corp. 7.750 42.10 NM 73.11
CCFH CCF Holding Company 12.125 13.71 NA 78.94
CFCP Coastal Financial Corp. 21.000 56.90 16.28 218.07
CFFC Community Financial Corp. 21.000 26.66 12.80 123.60
CFTP Community Federal Bancorp 12.750 59.02 NA NA
CMSV Community Savings, MHC 15.000 72.83 18.07 97.66
CNIT CENIT Bancorp, Inc. 34.625 55.62 19.45 118.30
COOP Cooperative Bankshares, Inc. 18.000 26.85 32.14 92.31
COSB CSB Financial Corporation 20.750 54.82 27.30 116.31
EBCI Eagle Bancorp, Inc. 32.000 87.34 21.33 181.92
EBSI Eagle Bancshares 14.750 45.98 9.97 123.85
ESX Essex Bancorp, Inc. 3.250 3.41 NM 15.09
FFBS FFBS BanCorp, Inc. 19.500 30.67 18.22 118.69
FFCH First Financial Holdings Inc. 20.250 128.19 13.06 135.18
FFFC FFVA Financial Corp. 31.250 89.12 14.27 94.21
FFFG F.F.O. Financial Group, Inc. 2.625 22.13 15.44 117.19
FFFL Fidelity FSB of Florida, MHC 13.500 90.69 18.49 109.67
FFLC FFLC Bancorp, Inc. 17.750 46.83 15.43 83.49
FFML First Family Financial Corp. 21.750 11.85 15.65 137.92
FFPB First Palm Beach Bancorp, Inc. 21.500 111.38 14.14 101.37
FFPC Florida First Bancorp, Inc. 8.500 28.68 12.32 136.22
FFRV Fidelity Financial Bankshares 13.250 30.17 9.81 112.48
FGHC First Georgia Holding, Inc. 7.000 14.01 12.73 143.74
FLAG FLAG Financial Corp. 13.500 25.87 15.34 141.66
FLFC First Liberty Financial Corp. 21.750 86.40 13.26 131.90
FOBC Fed One Bancorp 15.125 37.65 12.50 91.50
FPRY First Financial Bancorp 20.625 17.84 15.51 118.06
FSFC First Southeast Financial Corp 18.750 76.89 23.44 109.01
FTF Texarkana First Financial Corp 15.375 30.50 NA 91.14
GSFC Green Street Financial Corp. 12.250 52.65 NA NA
GSLC Guaranty Financial Corp. 7.750 7.12 13.14 112.65
HARB Harbor Federal Savings Bk, MHC 28.750 141.60 13.37 171.33
</TABLE>
Source: SNL and F&C calculations. 1
<PAGE>
FERGUSON & CO., LLP Exhibit II.1-Southeast Region Thrifts
<TABLE>
<CAPTION>
Current
Deposit Current Current Price/
Insurance Stock Market Price/LTM Book
Agency Price Value Core EPS Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HOFL Home Financial Corp. Hollywood FL SE SAIF NASDAQ 10/25/94 13.875 343.69 16.32 104.17
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93 17.250 11.44 12.32 83.94
LFCT Leader Financial Corp. Memphis TN SE SAIF NASDAQ 09/30/93 44.000 436.65 11.43 171.14
LIFB Life Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 10/11/94 14.250 148.24 15.00 96.68
MGNL Magna Bancorp, Inc. Hattiesburg MS SE SAIF NASDAQ 03/13/91 36.250 252.27 12.95 200.06
NFSL Newnan Savings Bank, FSB Newnan GA SE SAIF NASDAQ 03/01/86 18.000 26.04 9.78 139.97
PALM Palfed, Inc. Aiken SC SE SAIF NASDAQ 12/15/85 12.810 65.35 17.55 126.96
PDB Piedmont Bancorp, Inc. Hillsborough NC SE SAIF AMSE 12/08/95 13.500 35.71 NA 96.09
PFSL Pocahontas FS&LA, MHC Pocahontas AR SE SAIF NASDAQ 04/05/94 15.000 24.15 12.10 109.97
PLE Pinnacle Bank Jasper AL SE SAIF AMSE 12/17/86 16.375 14.57 10.70 97.24
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 16.500 12.87 18.33 98.80
SCSL Suncoast Savings and Loan Hollywood FL SE SAIF NASDAQ 07/30/85 6.310 12.56 NA 93.76
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 19.125 71.60 19.72 106.61
SRN Southern Banc Company, Inc Gadsden AL SE SAIF AMSE 10/05/95 12.500 18.18 NA 80.54
SSB Scotland Bancorp, Inc Laurinburg NC SE SAIF AMSE 04/01/96 11.750 21.62 NA NA
SSM Stone Street Bancorp, Inc. Mocksville NC SE SAIF AMSE 04/01/96 17.500 31.94 NA NA
SZB SouthFirst Bancshares, Inc. Sylacauga AL SE SAIF AMSE 02/14/95 12.375 10.68 NA 70.96
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 16.000 14.37 14.55 101.98
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 7.875 24.14 10.79 116.49
VABF Virginia Beach Fed. Financial Virginia Beach VA SE SAIF NASDAQ 11/01/80 8.250 40.94 NM 99.64
VAFD Valley Federal Savings Bank Sheffield AL SE SAIF NASDAQ 10/15/87 33.000 12.02 26.61 120.04
VFFC Virginia First Financial Petersburg VA SE SAIF NASDAQ 01/01/78 11.625 65.28 9.85 118.50
WFSB 1st Washington Bancorp Inc. Herndon VA SE SAIF NASDAQ 05/14/87 7.840 77.48 26.13 164.36
Maximum 44.000 436.650 32.140 218.070
Minimum 2.625 3.410 9.780 15.090
Average 16.756 68.052 15.638 116.282
Median 15.375 37.650 14.270 112.480
</TABLE>
Source: SNL and F&C calculations.
2
<PAGE>
FERGUSON & CO., LLP
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Exhibit 11.1 - Southeast Region Thrifts
<TABLE>
<CAPTION>
Current Return on
Price/ Tangible Ave Assets ROACE
Tang Current Total Equity/ Equity/ Core Before Before
Book Price/ Dividend Assets Assets Tang Assets EPS Extra Extra Merger Current
Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFB 174.61 12.76 2.540 1,345,884 8.16 7.56 1.59 1.41 17.81 N 04/30/96
BANC 153.06 9.53 1.117 1,750,689 6.89 6.27 1.28 1.07 15.11 N 04/30/96
BFSB 103.05 17.65 2.072 117,596 16.10 16.10 1.25 1.26 7.56 N 04/30/96
BKUNA 73.11 2.55 0.000 638,434 7.33 7.33 (0.51) 1.14 23.32 N 04/30/96
CCFH 78.94 17.05 3.299 79,578 21.60 21.60 NA 0.86 NA N 04/30/96
CFCP 218.07 13.32 2.381 428,352 6.11 6.11 1.29 0.95 15.65 N 04/30/96
CFFC 123.60 16.90 2.476 157,766 13.68 13.68 1.64 1.34 10.20 N 04/30/96
CFTP NA NA 0.000 162,042 14.46 14.46 NA 1.28 NA N 04/30/96
CMSV 97.66 12.41 4.667 587,064 12.71 12.71 0.83 0.82 6.32 N 04/30/96
CNIT 122.96 8.64 2.310 639,812 7.30 7.05 1.78 0.41 5.56 N 04/30/96
COOP 105.39 8.61 0.000 311,843 9.33 8.27 0.56 0.32 3.62 N 04/30/96
COSB 121.56 16.67 1.928 328,880 14.33 13.80 0.76 0.68 4.73 Y 04/30/96
EBCI 181.92 22.12 1.750 394,787 12.16 12.16 1.50 1.24 10.71 Y 04/18/96
EBSI 123.85 8.24 3.525 558,315 6.65 6.65 1.48 0.97 13.77 N 04/30/96
ESX 24.31 1.01 0.000 338,724 6.68 4.26 (3.35) (1.33) (36.37) N 04/30/96
FFBS 118.69 24.82 2.051 123,553 19.56 19.56 1.07 1.32 6.50 N 04/30/96
FFCH 135.54 9.03 3.160 1,416,608 6.68 6.66 1.55 0.72 10.75 N 04/30/96
FFFC 96.09 17.92 2.560 497,290 17.71 17.42 2.19 1.35 7.44 N 04/30/96
FFFG 117.19 7.34 0.000 301,485 6.23 6.23 0.17 0.64 9.17 N 04/30/96
FFFL 111.11 11.63 4.444 779,620 10.42 10.30 0.73 0.65 6.22 N 04/30/96
FFLC 83.49 14.17 2.254 330,514 16.97 16.97 1.15 0.94 5.43 N 04/30/96
FFML 137.92 7.73 0.736 153,250 5.61 5.61 1.39 0.82 16.16 N 04/30/96
FFPB 104.02 8.40 1.860 1,378,589 8.29 8.10 1.52 0.64 7.44 N 04/30/96
FFPC 136.22 9.43 2.824 304,040 6.93 6.93 0.69 0.86 12.90 N 04/30/96
FFRV 112.57 9.60 1.208 314,413 8.54 8.53 1.35 1.00 11.99 N 04/30/96
FGHC 163.55 10.27 0.000 135,582 8.30 7.36 0.55 0.89 11.09 N 04/30/96
FLAG 141.66 11.14 2.222 232,105 8.92 8.92 0.88 0.87 9.78 N 04/30/96
FLFC 158.64 9.32 2.391 927,108 7.88 6.77 1.64 1.02 14.49 N 04/30/96
FOBC 96.65 11.09 3.570 339,562 12.12 11.55 1.21 1.00 7.74 N 04/30/96
FPRY 118.06 7.70 2.909 231,649 6.53 6.53 1.33 0.64 9.93 Y 04/30/96
FSFC 109.01 21.39 2.560 359,481 19.62 19.62 0.80 0.90 4.59 N 04/30/96
FTF 91.14 18.85 2.927 161,785 20.69 20.69 NA 1.55 NA N 04/30/96
GSFC NA NA 0.000 151,028 14.72 14.72 NA 1.21 NA N 04/30/96
GSLC 112.65 7.38 0.000 96,577 6.55 6.55 0.59 0.57 9.97 N 04/30/96
HARB 171.33 15.18 4.174 932,858 8.86 8.86 2.15 1.19 13.70 N 04/30/96
HFNC 98.87 25.98 0.000 926,259 26.29 26.29 NA NA NA N 04/30/96
</TABLE>
Source: SNL and F&C calculations
3
<PAGE>
FERGUSON & CO., LLP Exhibit II.1 - Southeast Region Thrifts
- -------------------
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before
Price/ Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Current
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HOFL 104.17 28.00 5.766 1,227,371 25.52 25.52 0.85 1.70 6.60 N 04/30/96
KSAV 84.02 12.73 3.478 89,871 15.16 15.15 1.40 1.14 6.85 N 04/30/96
LFCT 171.14 13.74 1.636 3,177,812 8.03 8.03 3.85 1.40 17.38 Y 04/30/96
LIFB NA 12.31 3.088 1,204,577 12.73 NA 0.95 0.86 5.94 N 04/30/96
MGNL 212.98 19.54 1.655 1,290,780 9.77 9.23 2.80 1.80 18.27 N 04/30/96
NFSL 140.85 16.21 2.222 160,656 11.58 11.51 1.84 1.89 17.69 N 04/30/96
PALM 133.86 10.12 0.625 646,024 7.97 7.59 0.73 0.64 8.54 N 04/30/96
PDB 96.09 29.15 2.963 122,482 30.35 30.35 NA 1.25 NA N 04/30/96
PFSL 109.97 6.54 5.067 369,379 5.95 5.95 1.24 0.56 9.45 N 04/30/96
PLE 100.96 7.50 4.397 194,311 7.71 7.45 1.53 0.77 10.29 N 04/30/96
SCCB 98.80 29.30 3.636 43,939 29.65 29.65 0.90 1.50 4.95 N 04/30/96
SCSL 94.18 3.37 0.000 372,140 6.89 6.87 NA 0.34 3.35 N 04/30/96
SOPN 106.61 27.94 3.137 256,294 26.21 26.21 0.97 1.48 5.68 N 04/30/96
SRN 81.43 16.42 2.800 110,757 20.38 20.20 NA NA NA N 04/30/96
SSB NA NA 0.000 57,718 14.87 14.87 NA 1.25 NA N 04/30/96
SSM NA NA 0.000 81,560 14.38 14.38 NA 1.40 NA N 04/30/96
SZB 70.96 12.45 4.040 85,775 17.55 17.55 NA 0.74 4.52 N 04/30/96
TWIN 101.98 14.03 4.000 102,423 13.76 13.76 1.10 1.08 7.84 N 04/30/96
UFRM 116.49 9.78 2.540 246,918 8.39 8.39 0.73 1.00 12.75 N 04/30/96
VABF 99.64 6.55 1.939 624,964 6.58 6.58 0.01 0.23 3.99 N 04/30/96
VAFD 120.04 9.84 1.818 122,083 8.20 8.20 1.24 0.36 4.61 Y 04/30/96
VFFC 122.89 9.14 0.860 713,931 7.72 7.46 1.18 1.21 16.02 N 04/30/96
WFSB 164.36 9.67 1.531 801,329 5.89 5.89 0.30 0.67 11.99 Y 04/30/96
Maximum 218.070 29.300 5.766 3,177,812.000 30.350 30.350 3.850 1.890 23.320
Minimum 24.310 1.010 0.000 43,939.000 5.610 4.260 (3.350) (1.330) (36.370)
Average 119.406 13.276 2.154 509,088.407 12.308 12.120 1.098 0.956 9.000
Median 112.610 11.630 2.254 328,880.000 9.330 8.890 1.195 0.970 9.310
</TABLE>
Source: SNL and F&C calculations
4
<PAGE>
FERGUSON & CO., LLP Exhibit 11.1 - Southeast Region Thrifts
- -------------------
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
AMFB 0.71 10.64 0.37 1.33 16.19
BANC 1.28 17.12 0.23 0.93 9.27
BFSB 0.00 12.41 0.35 1.37 8.45
BKUNA 0.88 12.92 0.15 0.59 7.06
CCFH 0.45 18.95 0.16 0.92 4.27
CFCP 0.19 16.94 0.31 1.02 16.60
CFFC 0.27 12.50 0.42 1.37 10.20
CFTP 0.53 NA NA 1.27 NA
CMSV 0.73 17.86 0.21 0.73 5.71
CNIT 0.43 26.23 0.33 0.20 2.80
COOP 0.18 40.91 0.11 0.23 2.48
COSB 0.32 28.82 0.18 0.57 4.04
EBCI 0.34 40.00 0.20 0.57 4.82
EBSI 0.49 8.38 0.44 1.06 15.74
ESX 3.27 NM (0.66) (0.40) (6.01)
FFBS 0.43 17.41 0.28 1.43 7.13
FFCH 1.47 11.51 0.44 0.72 10.77
FFFC 0.52 12.81 0.61 1.32 7.43
FFFG 3.62 13.13 0.05 0.69 10.59
FFFL NA 18.75 0.18 0.62 6.03
FFLC 0.08 14.31 0.31 0.99 5.82
FFML 0.57 12.95 0.42 1.29 23.78
FFPB 0.74 12.22 0.44 0.81 9.46
FFPC 0.82 10.12 0.21 0.99 14.47
FFRV 0.72 10.69 0.31 0.92 10.76
FGHC 1.42 14.58 0.12 0.79 9.24
FLAG 1.86 19.85 0.17 0.76 8.11
FLFC 1.80 12.36 0.44 1.03 14.03
FOBC 0.14 12.60 0.30 0.96 7.69
FPRY 0.11 20.63 0.25 0.54 8.28
FSFC NA 22.32 0.21 0.92 4.66
FTF 0.22 9.86 0.39 1.80 8.78
GSFC 0.21 NA NA NA NA
GSLC NA 19.38 0.10 0.60 9.09
HARB 0.54 13.07 0.55 1.19 13.47
HFNC 1.38 NA NA 0.55 2.59
</TABLE>
Source: SNL and F&C calculations.
5
<PAGE>
FERGUSON & CO., LLP Exhibit II.1-Southeast Region Thrifts
- -------------------
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
HOFL 0.06 17.34 0.20 1.66 6.49
KSAV 0.73 11.98 0.36 1.12 7.02
LFCT NA 10.19 1.08 1.46 18.26
LIFB NA 14.25 0.25 0.90 6.58
MGNL NA 12.08 0.75 1.58 15.73
NFSL 0.67 10.71 0.42 1.87 16.31
PALM 4.25 18.84 0.17 0.68 8.59
PDB 0.07 NA NA 1.33 8.13
PFSL 0.20 12.10 0.31 0.56 9.43
PLE 0.27 9.52 0.43 0.87 11.32
SCCB NA 27.50 0.15 1.00 3.34
SCSL 0.19 NM (0.21) 0.72 13.48
SOPN 0.03 19.13 0.25 1.52 5.83
SRN 8.18 NA NA 0.44 2.96
SSB 0.00 NA NA NA NA
SSM 0.00 NA NA NA NA
SZB 0.19 38.67 0.08 0.78 4.45
TWIN 0.42 12.90 0.31 1.18 8.38
UFRM 0.08 9.38 0.21 1.08 13.68
VABF 1.10 41.25 0.05 0.33 5.33
VAFD 0.61 26.61 0.31 0.41 5.11
VFFC 2.89 11.18 0.26 1.25 15.98
WFSB 1.23 32.67 0.06 0.70 12.10
Maximum 8.180 41.250 1.080 1.870 23.780
Minimum 0.000 8.380 (0.660) (0.400) (6.010)
Average 0.921 17.571 0.270 0.931 8.951
Median 0.505 13.690 0.255 0.920 8.380
</TABLE>
Source: SNL and F&C calculations.
6
<PAGE>
FERGUSON & CO., LLP Exhibit 11.1a - Southeast Region Select
- -------------------
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date
<S> <C> <C> <C> <C> <C> <C> <C>
AMFB American Federal Bank Greenville SC SE SAIF NASDAQ 01/19/89
BANC BankAtlantic Bancorp, Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83
BFSB Bedford Bancshares, Inc. Bedford VA SE SAIF NASDAQ 08/22/94
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90
CFPC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88
CMSV Community Savings, MHC North Palm Beach FL SE SAIF NASDAQ 10/24/94
CNIT CENIT Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 08/06/92
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86
FFBS FFBS BanCorp, Inc. Columbus MS SE SAIF NASDAQ 07/01/93
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94
FFFG F.F.O. Financial Group, Inc. St. Cloud FL SE SAIF NASDAQ 10/13/88
FFFL Fidelity FSB of Florida, MHC West Palm Beach FL SE SAIF NASDAQ 01/07/94
FFLC FFLC Bancorp, Inc. Leesburg FL SE SAIF NASDAQ 01/04/94
FFML First Family Financial Corp. Eustis FL SE SAIF NASDAQ 10/22/92
FFPB First Palm Beach Bancorp, Inc. West Palm Beach FL SE SAIF NASDAQ 09/29/93
FFPC Florida First Bancorp, Inc. Panama City FL SE SAIF NASDAQ 11/06/86
FFRV Fidelity Financial Bankshares Richmond VA SE SAIF NASDAQ 05/01/86
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ 02/11/87
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95
FSFC First Southeast Financial Corp. Anderson SC SE SAIF NASDAQ 10/08/93
GSLC Guaranty Financial Corp. Charlottesville VA SE SAIF NASDAQ NA
HARB Harbor Federal Savings Bk, MHC Fort Pierce FL SE SAIF NASDAQ 01/06/94
HOFL Home Financial Corp. Hollywood FL SE SAIF NASDAQ 10/25/94
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93
LIFB Life Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 10/11/94
MGNL Magna Bancorp, Inc. Hattiesburg MS SE SAIF NASDAQ 03/13/91
NFSL Newnan Savings Bank, FSB Newnan GA SE SAIF NASDAQ 03/01/86
PALM Palfed, Inc. Aiken SC SE SAIF NASDAQ 12/15/85
PFSL Pocahontas FS&LA, MHC Pocahontas AR SE SAIF NASDAQ 04/05/94
PLE Pinnacle Bank Jasper AL SE SAIF AMSE 12/17/86
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80
</TABLE>
<TABLE>
<CAPTION>
Current Current Current
Stock Market Price/ Price/
Price Value LTM Core EPS Book Value
Ticker Short Name City ($) ($M) (x) (%)
<S> <C> <C> <C> <C> <C> <C>
AMFB American Federal Bank Greenville 15.750 171.73 9.91 160.71
BANC BankAtlantic Bancorp, Inc. Fort Lauderdale 15.750 184.95 12.30 138.40
BFSB Bedford Bancshares, Inc. Bedford 17.375 20.43 13.90 103.05
CFCP Coastal Financial Corp. Myrtle Beach 21.000 56.90 16.28 218.07
CFFC Community Financial Corp. Staunton 21.000 26.66 12.80 123.60
CMSV Community Savings, MHC North Palm Beach 15.000 72.83 18.07 97.66
CNIT CENIT Bancorp, Inc. Norfolk 34.625 55.62 19.45 118.30
EBSI Eagle Bancshares Tucker 14.750 45.98 9.97 123.85
FFBS FFBS BanCorp, Inc. Columbus 19.500 30.67 18.22 118.69
FFCH First Financial Holdings Inc. Charleston 20.250 128.19 13.06 135.18
FFFC FFVA Financial Corp. Lynchburg 31.250 89.12 14.27 94.21
FFFG F.F.O. Financial Group, Inc. St. Cloud 2.625 22.13 15.44 117.19
FFFL Fidelity FSB of Florida, MHC West Palm Beach 13.500 90.69 18.49 109.67
FFLC FFLC Bancorp, Inc. Leesburg 17.750 46.83 15.43 83.49
FFML First Family Financial Corp. Eustis 21.750 11.85 15.65 137.92
FFPB First Palm Beach Bancorp, Inc. West Palm Beach 21.500 111.38 14.14 101.37
FFPC Florida First Bancorp, Inc. Panama City 8.500 28.68 12.32 136.22
FFRV Fidelity Financial Bankshares Richmond 13.250 30.17 9.81 112.48
FGHC First Georgia Holding, Inc. Brunswick 7.000 14.01 12.73 143.74
FLAG FLAG Financial Corp. LaGrange 13.500 25.87 15.34 141.66
FLFC First Liberty Financial Corp. Macon 21.750 86.40 13.26 131.90
FOBC Fed One Bancorp Wheeling 15.125 37.65 12.50 91.50
FSFC First Southeast Financial Corp. Anderson 18.750 76.89 23.44 109.01
GSLC Guaranty Financial Corp. Charlottesville 7.750 7.12 13.14 112.65
HARB Harbor Federal Savings Bk, MHC Fort Pierce 28.750 141.60 13.37 171.33
HOFL Home Financial Corp. Hollywood 13.875 343.69 16.32 104.17
KSAV KS Bancorp, Inc. Kenly 17.250 11.44 12.32 83.94
LIFB Life Bancorp, Inc. Norfolk 14.250 148.24 15.00 96.68
MGNL Magna Bancorp, Inc. Hattiesburg 36.250 252.27 12.95 200.06
NFSL Newnan Savings Bank, FSB Newnan 18.000 26.04 9.78 139.97
PALM Palfed, Inc. Aiken 12.810 65.35 17.55 126.96
PFSL Pocahontas FS&LA, MHC Pocahontas 15.000 24.15 12.10 109.97
PLE Pinnacle Bank Jasper 16.375 14.57 10.70 97.24
SCCB S. Carolina Community Bancshrs Winnsboro 16.500 12.87 18.33 98.80
SOPN First Savings Bancorp, Inc. Southern Pines 19.125 71.60 19.72 106.61
TWIN Twin City Bancorp Bristol 16.000 14.37 14.55 101.98
UFRM United Federal Savings Bank Rocky Mount 7.875 24.14 10.79 116.49
</TABLE>
Source: SNL & F&C calculations.
7
<PAGE>
FERGUSON & CO., LLP Exhibit II.1a - Southeast Region Select
- -------------------
<TABLE>
<CAPTION> Deposit Current Current
Insurance Stock Market Price/
Agency Price Value LTM Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VFFC Virginia First Financial Petersburg VA SE SAIF NASDAQ 01/01/78 11.625 65.28 9.85
Maximum 36.250 343.690 23.440
Minimum 2.625 7.120 9.780
Average 17.176 70.746 14.296
Median 16.188 46.405 13.635
</TABLE>
<TABLE>
<CAPTION>
Current
Price/
Book Value
Ticker Short Name (%)
<S> <C> <C>
VFFC Virginia First Financial 118.50
Maximum 218.070
Minimum 83.490
Average 121.927
Median 116.840
</TABLE>
Source: SNL and F&C calculations.
8
<PAGE>
FERGUSON & CO., LLP Exhibit II.1a - Southeast Region Select
- -------------------
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before
Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Current
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AMFB 174.61 12.76 2.540 1,345,884 8.16 7.56 1.59 1.41 17.81 N 04/30/96
BANC 153.06 9.53 1.117 1,750,689 6.89 6.27 1.28 1.07 15.11 N 04/30/96
BFSB 103.05 17.65 2.072 117,596 16.10 16.10 1.25 1.26 7.56 N 04/30/96
CFCP 218.07 13.32 2.381 428,352 6.11 6.11 1.29 0.95 15.65 N 04/30/96
CFFC 123.60 16.90 2.476 157,766 13.68 13.68 1.64 1.34 10.20 N 04/30/96
CMSV 97.66 12.41 4.667 587,064 12.71 12.71 0.83 0.82 6.32 N 04/30/96
CNIT 122.96 8.64 2.310 639,812 7.30 7.05 1.78 0.41 5.56 N 04/30/96
EBSI 123.85 8.24 3.525 558,315 6.65 6.65 1.48 0.97 13.77 N 04/30/96
FFBS 118.69 24.82 2.051 123,553 19.56 19.56 1.07 1.32 6.50 N 04/30/96
FFCH 135.54 9.03 3.160 1,416,608 6.68 6.66 1.55 0.72 10.75 N 04/30/96
FFFC 96.09 17.92 2.560 497,290 17.71 17.42 2.19 1.35 7.44 N 04/30/96
FFFG 117.19 7.34 0.000 301,485 6.23 6.23 0.17 0.64 9.17 N 04/30/96
FFFL 111.11 11.63 4.444 779,620 10.42 10.30 0.73 0.65 6.22 N 04/30/96
FFLC 83.49 14.17 2.254 330,514 16.97 16.97 1.15 0.94 5.43 N 04/30/96
FFML 137.92 7.73 0.736 153,250 5.61 5.61 1.39 0.82 16.16 N 04/30/96
FFPB 104.02 8.40 1.860 1,378,589 8.29 8.10 1.52 0.64 7.44 N 04/30/96
FFPC 136.22 9.43 2.824 304,040 6.93 6.93 0.69 0.86 12.90 N 04/30/96
FFRV 112.57 9.60 1.208 314,413 8.54 8.53 1.35 1.00 11.99 N 04/30/96
FGHC 163.55 10.27 0.000 135,582 8.30 7.36 0.55 0.89 11.09 N 04/30/96
FLAG 141.66 11.14 2.222 232,105 8.92 8.92 0.88 0.87 9.78 N 04/30/96
FLFC 158.64 9.32 2.391 927,108 7.88 6.77 1.64 1.02 14.49 N 04/30/96
FOBC 96.65 11.09 3.570 339,562 12.12 11.55 1.21 1.00 7.74 N 04/30/96
FSFC 109.01 21.39 2.560 359,481 19.62 19.62 0.80 0.90 4.59 N 04/30/96
GSLC 112.65 7.38 0.000 96,577 6.55 6.55 0.59 0.57 9.97 N 04/30/96
HARB 171.33 15.18 4.174 932,858 8.86 8.86 2.15 1.19 13.70 N 04/30/96
HOFL 104.17 28.00 5.766 1,227,371 25.52 25.52 0.85 1.70 6.60 N 04/30/96
KSAV 84.02 12.73 3.478 89,871 15.16 15.15 1.40 1.14 6.85 N 04/30/96
LIFB NA 12.31 3.088 1,204,577 12.73 NA 0.95 0.86 5.94 N 04/30/96
MGNL 212.98 19.54 1.655 1,290,780 9.77 9.23 2.80 1.80 18.27 N 04/30/96
NFSL 140.85 16.21 2.222 160,656 11.58 11.51 1.84 1.89 17.69 N 04/30/96
PALM 133.86 10.12 0.625 646,024 7.97 7.59 0.73 0.64 8.54 N 04/30/96
PFSL 109.97 6.54 5.067 369,379 5.95 5.95 1.24 0.56 9.45 N 04/30/96
PLE 100.96 7.50 4.397 194,311 7.71 7.45 1.53 0.77 10.29 N 04/30/96
SCCB 98.80 29.30 3.636 43,939 29.65 29.65 0.90 1.50 4.95 N 04/30/96
SOPN 106.61 27.94 3.137 256,294 26.21 26.21 0.97 1.48 5.68 N 04/30/96
TWIN 101.98 14.03 4.000 102,423 13.76 13.76 1.10 1.08 7.84 N 04/30/96
UFRM 116.49 9.78 2.540 246,918 8.39 8.39 0.73 1.00 12.75 N 04/30/96
</TABLE>
Source: SNL and F&C calculations.
9
<PAGE>
FERGUSON & CO., LLP Exhibit II.1a - Southeast Region Select
- -------------------
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before
Price/ Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Current
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VFFC 122.89 9.14 0.860 713,931 7.72 7.46 1.18 1.21 16.02 N 04/30/96
Maximum 218.070 29.300 5.766 1,750,689.000 29.650 29.650 2.800 1.890 18.270
Minimum 83.490 6.540 0.000 43,939.000 5.610 5.610 0.170 0.410 4.590
Average 125.859 13.380 2.568 546,173.342 11.550 11.350 1.237 1.033 10.216
Median 117.190 11.385 2.508 349,521.500 8.700 8.530 1.225 0.985 9.615
</TABLE>
10
<PAGE>
FERGUSON & CO., LLP Exhibit II.1a - Southeast Region Select
- -------------------
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
AMFB 0.71 10.64 0.37 1.33 16.19
BANC 1.28 17.12 0.23 0.93 9.27
BFSB 0.00 12.41 0.35 1.37 8.45
CFCP 0.19 16.94 0.31 1.02 16.60
CFFC 0.27 12.50 0.42 1.37 10.20
CMSV 0.73 17.86 0.21 0.73 5.71
CNIT 0.43 26.23 0.33 0.20 2.80
EBSI 0.49 8.38 0.44 1.06 15.74
FFBS 0.43 17.41 0.28 1.43 7.13
FFCH 1.47 11.51 0.44 0.72 10.77
FFFC 0.52 12.81 0.61 1.32 7.43
FFFG 3.62 13.13 0.05 0.69 10.59
FFFL NA 18.75 0.18 0.62 6.03
FFLC 0.08 14.31 0.31 0.99 5.82
FFML 0.57 12.95 0.42 1.29 23.78
FFPB 0.74 12.22 0.44 0.81 9.46
FFPC 0.82 10.12 0.21 0.99 14.47
FFRV 0.72 10.69 0.31 0.92 10.76
FGHC 1.42 14.58 0.12 0.79 9.24
FLAG 1.86 19.85 0.17 0.76 8.11
FLFC 1.80 12.36 0.44 1.03 14.03
FOBC 0.14 12.60 0.30 0.96 7.69
FSFC NA 22.32 0.21 0.92 4.66
GSLC NA 19.38 0.10 0.60 9.09
HARB 0.54 13.07 0.55 1.19 13.47
HOFL 0.06 17.34 0.20 1.66 6.49
KSAV 0.73 11.98 0.36 1.12 7.02
LIFB NA 14.25 0.25 0.90 6.58
MGNL NA 12.08 0.75 1.58 15.73
NFSL 0.67 10.71 0.42 1.87 16.31
PALM 4.25 18.84 0.17 0.68 8.59
PFSL 0.20 12.10 0.31 0.56 9.43
PLE 0.27 9.52 0.43 0.87 11.32
SCCB NA 27.50 0.15 1.00 3.34
SOPN 0.03 19.13 0.25 1.52 5.83
TWIN 0.42 12.90 0.31 1.18 8.38
UFRM 0.08 9.38 0.21 1.08 13.68
</TABLE>
11
Source: SNL and F&C calculations.
<PAGE>
FERGUSON & CO., LLP Exhibit II.1a - Southeast Region Select
- -------------------
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
VFFC 2.89 11.18 0.26 1.25 15.98
Maximum 4.250 27.500 0.750 1.870 23.780
Minimum 0.000 8.380 0.050 0.200 2.800
Average 0.888 14.659 0.312 1.034 10.162
Median 0.555 12.925 0.310 0.995 9.255
</TABLE>
Source: SNL and F&C calculations.
12
<PAGE>
FERGUSON & CO., LLP Exhibit II.2-North Carolina Thrifts
- -------------------
<TABLE>
<CAPTION>
Deposit Current Current Current
Insurance Stock Market Price/ Price/
Agency Price Value LTM Core EPS Book Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COOP Cooperative Bankshares, Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 18.000 26.85 32.14 92.31
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 12.250 52.65 NA NA
HFNC HFNC Financial Corp. Charlotte NC SE SAIF NASDAQ 12/29/95 14.000 240.70 NA 98.87
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93 17.250 11.44 12.32 83.94
PDB Piedmont Bancorp, Inc. Hillsborough NC SE SAIF AMSE 12/08/95 13.500 35.71 NA 96.09
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 19.125 71.60 19.72 106.61
SSB Scotland Bancorp, Inc Laurinburg NC SE SAIF AMSE 04/01/96 11.750 21.62 NA NA
SSM Stone Street Bancorp, Inc. Mocksville NC SE SAIF AMSE 04/01/96 17.500 31.94 NA NA
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 7.875 24.14 10.79 116.49
Maximum 19.125 240.700 32.140 116.490
Minimum 7.875 11.440 10.790 83.940
Average 14.583 57.406 18.743 99.052
Median 14.000 31.940 16.020 97.480
</TABLE>
Source: SNL and F&C calculations.
13
<PAGE>
FERGUSON & CO., LLP Exhibit II.2-North Carolina Thrifts
- -------------------
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before
Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Current
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? Pricing
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Date
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COOP 105.39 8.61 0.000 311,843 9.33 8.27 0.56 0.32 3.62 N 04/30/96
GSFC NA NA 0.000 151,028 14.72 14.72 NA 1.21 NA N 04/30/96
HFNC 98.87 25.98 0.000 926,259 26.29 26.29 NA NA NA N 04/30/96
KSAV 84.02 12.73 3.478 89,871 15.16 15.15 1.40 1.14 6.85 N 04/30/96
PDB 96.09 29.15 2.963 122,482 30.35 30.35 NA 1.25 NA N 04/30/96
SOPN 106.61 27.94 3.137 256,294 26.21 26.21 0.97 1.48 5.68 N 04/30/96
SSB NA NA 0.000 57,718 14.87 14.87 NA 1.25 NA N 04/30/96
SSM NA NA 0.000 81,560 14.38 14.38 NA 1.40 NA N 04/30/96
UFRM 116.49 9.78 2.540 246,918 8.39 8.39 0.73 1.00 12.75 N 04/30/96
Maximum 116.490 29.150 3.478 926,259.000 30.350 30.350 1.400 1.480 12.750
Minimum 84.020 8.610 0.000 57,718.000 8.390 8.270 0.560 0.320 3.620
Average 101.245 19.032 1.346 249,330.333 17.744 17.626 0.915 1.131 7.225
Median 102.130 19.355 0.000 151,028.000 14.870 14.870 0.850 1.230 6.265
</TABLE>
Source: SNL and F&C calculations.
14
<PAGE>
FERGUSON & CO., LLP Exhibit II.2-North Carolina Thrifts
- -------------------
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
COOP 0.18 40.91 0.11 0.23 2.48
GSFC 0.21 NA NA NA NA
HFNC 1.38 NA NA 0.55 2.59
KSAV 0.73 11.98 0.36 1.12 7.02
PDB 0.07 NA NA 1.33 8.13
SOPN 0.03 19.13 0.25 1.52 5.83
SSB 0.00 NA NA NA NA
SSM 0.00 NA NA NA NA
0.08 9.38 0.21 1.08 13.68
UFRM
Maximum 1.380 40.910 0.360 1.520 13.680
Minimum 0.000 9.380 0.110 0.230 2.480
Average 0.298 20.350 0.233 0.972 6.622
Median 0.080 15.555 0.230 1.100 6.425
</TABLE>
Source: SNL and F&C calculations.
15
<PAGE>
FERGUSON & CO., LLP Exhibit II.2a-North Carolina Thrifts-Select
- -------------------
<TABLE>
<CAPTION>
Current
Deposit Current Current Price/
Insurance Stock Market Price/ Book
Agency Price Value LTM Core EPS Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 7.875 24.14 10.79 116.49
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93 17.250 11.44 12.32 83.94
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 19.125 71.60 19.72 106.61
Maximum 19.125 71.600 19.720 116.490
Minimum 7.875 11.440 10.790 83.940
Average 14.750 35.727 14.277 102.347
Median 17.250 24.140 12.320 106.610
</TABLE>
Source: SNL and F&C calculations. 16
<PAGE>
FERGUSON & CO., LLP Exhibit II.2a-North Carolina Thrifts-Select
- -------------------
<TABLE>
<CAPTION>
Tangible
Current Current Total Equity/ Equity/ Core
Price/Tang Price/ Dividend Assets Assets Tang Assets EPS
Book Value Assets Yield ($000) (%) (%) ($)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM
<S> <C> <C> <C> <C> <C> <C> <C>
UFRM 116.49 9.78 2.540 246,918 8.39 8.39 0.73
KSAV 84.02 12.73 3.478 89,871 15.16 15.15 1.40
SOPN 106.61 27.94 3.137 256,294 26.21 26.21 0.97
Maximum 116.490 27.940 3.478 256,294.000 26.210 26.210 1.400
Minimum 84.020 9.780 2.540 89,871.000 8.390 8.390 0.730
Average 102.373 16.817 3.052 197,694.333 16.587 16.583 1.033
Median 106.610 12.730 3.137 246,918.000 15.160 15.150 0.970
<CAPTION>
Return on ROACE
Avg Assets Before
Before Extra Extra Merger Current
(%) (%) Target? Pricing
Ticker LTM LTM (Y/N) Date
<S> <C> <C> <C> <C>
UFRM 1.00 12.75 N 04/30/96
KSAV 1.14 6.85 N 04/30/96
SOPN 0.97 5.68 N 04/30/96
Maximum 1.480 12.750
Minimum 1.000 5.680
Average 1.207 8.427
Median 1.140 6.850
</TABLE>
Source: SNL and F&C calculations.
17
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit II.2a - North Carolina Thrifts - Select
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
UFRM 0.08 9.38 0.21 1.08 13.68
KSAV 0.73 11.98 0.36 1.12 7.02
SOPN 0.03 19.13 0.25 1.52 5.83
Maximum 0.730 19.130 0.360 1.520 13.680
Minimum 0.030 9.380 0.210 1.080 5.830
Average 0.280 13.497 0.273 1.240 8.843
Median 0.080 11.980 0.250 1.120 7.020
</TABLE>
Source: SNL and F & C calculations.
18
<PAGE>
FERGUSON & CO., LLP Exhibit II.3-Comparatives General
- -------------------
<TABLE>
<CAPTION>
Total Current Current
Number Assets Stock Market
of ($000) Price Value
Ticker Short Name City State Offices Mst RetQ IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC First Georgia Holding, Inc. Brunswick GA 7 135,582 02/11/87 7.00 14.01
FIBC Financial Bancorp, Inc. Long Island City NY 5 243,450 08/17/94 13.25 24.82
FLAG FLAG Financial Corp. LaGrange GA 3 232,105 12/11/86 13.50 25.87
FOBC Fed One Bancorp Wheeling WV 9 339,562 01/19/95 15.13 37.65
FSBI Fidelity Bancorp, Inc. Pittsburgh PA 8 287,465 06/24/88 17.50 21.69
LARL Laurel Capital Group, Inc. Allison Park PA 6 192,654 02/20/87 16.00 24.12
NFSL Newman Savings Bank, FSB Newman GA 8 160,656 03/01/86 18.00 26.04
PLE Pinnacle Bank Jasper AL 5 194,311 12/17/86 16.38 14.57
SFED SFS Bancorp, Inc. Schenectady NY 3 165,569 06/30/95 12.75 17.79
SHEN First Shenango Bancorp, Inc. New Castle PA 4 355,710 04/06/93 20.50 47.31
SJSB SJS Bancorp St. Joseph MI 4 143,857 02/16/95 19.00 18.09
WVFC WVS Financial Corporation Pittsburgh PA 5 230,276 11/29/93 21.25 36.90
Maximum 9 355,710 21.25 47.31
Minimum 3 135,582 7.00 14.01
Average 6 223,433 15.85 25.74
Median 5 212,294 16.19 24.47
</TABLE>
Source: SNL and F&C calculations 19
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit II.4 - Comparatives Operations
<TABLE>
<CAPTION>
Net
Net Loan
Income Return Total Total Charge-
Before on Loan Non- Non- offs/
Average Net Extra Return on Average Loss Interest Interest Avg.
Assets Income Items Avg.Assets Equity Provision Income Expense Loans
($000) ($000) ($000) (%) (%) ($000) ($000) ($000) (%)
Ticker Short Name LTM LTM LTM LTM LTM LTM LTM LTM LTM
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC First Georgia Holding, Inc. 137,251 1,216 1,216 0.89 11.09 243 1,100 4,220 0.11
FIBC Financial Bancorp, Inc. 216,886 1,333 1,333 0.61 4.70 365 350 5,902 0.20
FLAG FLAG Financial Corp. 231,695 2,026 2,026 0.87 9.78 630 2,250 6,008 0.37
FOBC Fed One Bancorp 325,518 3,269 3,269 1.00 7.74 110 622 7,199 0.10
FSBI Fidelity Bancorp, Inc. 280,645 1,586 1,586 0.57 7.31 170 606 6,131 0.16
LARL Laurel Capital Group, Inc. 187,018 2,525 2,525 1.35 13.39 68 500 3,884 0.03
NFSL Newnan Savings Bank, FSB 160,948 3,040 3,040 1.89 17.69 40 1,234 2,892 0.05
PLE Pinnacle Bank 192,602 1,486 1,486 0.77 10.29 240 781 4,138 0.13
SFED SFS Bancorp, Inc. 163,926 1,026 1,026 0.63 5.06 320 307 4,079 0.66
SHEN First Shenango Bancorp, Inc. 328,718 3,331 3,331 1.01 7.19 905 851 6,232 0.54
SJSB SJS Bancorp 132,385 900 900 0.68 5.67 149 480 3,069 0.00
WVFC WVS Financial Corporation 225,283 2,667 2,667 1.18 7.77 182 315 4,487 0.01
Maximum 328,718 3,331 3,331 1.89 17.69 905 2,250 7,199 0.66
Minimum 132,385 900 900 0.57 4.70 40 307 2,892 -
Average 215,240 2,034 2,034 0.95 8.97 282 783 4,853 0.20
Median 204,744 1,806 1,806 0.88 7.76 208 614 4,354 0.12
</TABLE>
Source: SNL and F&C calculations.
20
<PAGE>
FERGUSON & CO., LLP Exhibit II.4 - Comparative Operations
- -------------------
<TABLE>
<CAPTION>
Common Dividend Interest Interest
LTM EPS Dividends Payout Income/ Expense/
After Extra Per Share Ratio Avg Assets Avg Assets
($) ($) (%) (%) (%)
Short Name LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C>
First Georgia Holding, Inc. 0.59 0.067 11.31 8.59 4.82
Financial Bancorp, Inc. 0.68 0.200 29.41 7.14 3.36
FLAG Financial Corp. 0.93 0.300 32.26 7.41 4.27
Fed One Bancorp 1.21 0.530 43.80 7.27 3.65
Fidelity Bancorp, Inc. 1.25 0.320 25.60 6.91 4.06
Laurel Capital Group, Inc. 1.64 0.240 14.63 7.77 3.79
Newnan Savings Bank, FSB 2.10 0.310 14.76 7.67 4.00
Pinnacle Bank 1.66 0.720 43.37 7.45 4.44
SFS Bancorp, Inc. NA NA NA 7.23 3.89
First Shenango Bancorp, Inc. 1.45 0.390 26.90 7.49 4.02
SJS Bancorp NA NA NA 7.22 4.32
WVS Financial Corporation 1.57 0.480 30.57 7.64 3.66
2.10 0.720 43.80 8.59 4.82
- - - 6.91 3.36
1.09 0.296 22.72 7.48 4.02
1.23 0.305 26.25 7.43 4.01
<CAPTION>
Net Interest Gain on Real Loan Loss Noninterest
Income/ Sale/ Estate Provision/ Income/
Avg Assets Avg Assets Expense Avg. Assets Avg Assets
(%) (%) ($000) (%) (%)
Short Name LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C>
First Georgia Holding, Inc. 3.77 0.00 24 0.17 0.80
Financial Bancorp, Inc. 3.79 0.00 687 0.17 0.16
FLAG Financial Corp. 3.14 0.08 (33) 0.27 0.97
Fed One Bancorp 3.62 0.00 10 0.03 0.19
Fidelity Bancorp, Inc. 2.85 0.00 1 0.06 0.22
Laurel Capital Group, Inc. 3.98 0.07 3 0.04 0.27
Newnan Savings Bank, FSB 3.67 0.36 (1,641) 0.01 0.77
Pinnacle Bank 3.02 0.09 (139) 0.12 0.41
SFS Bancorp, Inc. 3.34 0.00 (8) 0.20 0.19
First Shenango Bancorp, Inc. 3.47 0.09 129 0.28 0.26
SJS Bancorp 2.90 0.02 - 0.11 0.36
WVS Financial Corporation 3.98 0.00 (16) 0.08 0.14
3.98 0.36 687 0.28 0.97
2.85 - (1,641) 0.01 0.14
3.46 0.06 (82) 0.13 0.40
3.55 0.01 1 0.12 0.27
</TABLE>
Source: SNL and F&C calculations
21
<PAGE>
FERGUSON & CO., LLP Exhibit II.4 - Comparatives Operations
- -------------------
<TABLE>
<CAPTION>
G&A Noninterest Net Oper Total Amortization
Expense/ Expense/ Expenses/ Nonrecurring of Tax
Avg Assets Avg Assets Avg Assets Expense Intangibles Provision
(%) (%) (%) ($000) ($000) ($000)
Short Name LTM LTM LTM LTM LTM LTM
<S> <C> <C> <C> <C> <C> <C>
First Georgia Holding, Inc. 2.95 3.07 2.15 - 143.0 720.0
Financial Bancorp, Inc. 2.40 2.72 2.24 - 14.0 956.0
FLAG Financial Corp. 2.61 2.59 1.64 - - 1,045.0
Fed One Bancorp 2.12 2.21 1.93 - 282.0 1,815.0
Fidelity Bancorp, Inc. 2.09 2.18 1.87 - 264.0 731.0
Laurel Capital Group, Inc. 2.08 2.08 1.81 - - 1,590.0
Newnan Savings Bank, FSB 2.80 1.80 2.03 - 31.0 1,778.0
Pinnacle Bank 2.20 2.15 1.79 - 41.0 907.0
SFS Bancorp, Inc. 2.49 2.49 2.31 - - 355.0
First Shenango Bancorp, Inc. 1.86 1.90 1.60 - - 2,087.0
SJS Bancorp 2.32 2.32 1.96 - - 222.0
WVS Financial Corporation 2.00 1.99 1.86 491.00 - 1,838.0
2.95 3.07 2.31 491.00 282.0 2,087.0
1.86 1.80 1.60 - - 222.0
2.33 2.29 1.93 40.92 64.6 1,170.3
2.26 2.20 1.90 - 7.0 1,000.5
</TABLE>
<TABLE>
<CAPTION>
Core Yield on
Efficiency Income/ Int Earning
Ratio Avg Assets Assets
(%) (%) (%)
Short Name LTM LTM LTM
<S> <C> <C> <C>
First Georgia Holding, Inc. 64.66 0.83 9.02
Financial Bancorp, Inc. 60.75 0.62 7.55
FLAG Financial Corp. 63.38 0.82 8.00
Fed One Bancorp 55.75 1.00 7.52
Fidelity Bancorp, Inc. 68.17 0.56 7.16
Laurel Capital Group, Inc. 48.91 1.30 8.01
Newnan Savings Bank, FSB 63.12 1.65 8.20
Pinnacle Bank 64.26 0.71 7.77
SFS Bancorp, Inc. 70.71 0.63 7.36
First Shenango Bancorp, Inc. 49.77 0.96 7.70
SJS Bancorp 71.12 0.67 7.39
WVS Financial Corporation 48.56 1.21 7.75
71.12 1.65 9.02
48.56 0.56 7.16
60.76 0.91 7.79
63.25 0.83 7.73
</TABLE>
Source: SNL and F&C calculations.
22
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit II.4 - Comparatives Operations
<TABLE>
<CAPTION>
Cost of Interest
Int Bearing Effective Yield
Liabilities Tax Rate Spread
(%) (%) (%)
Short Name LTM LTM LTM
<S> <C> <C> <C>
First Georgia Holding, Inc. 5.22 37.19 3.80
Financial Bancorp, Inc. 4.04 41.76 3.51
FLAG Financial Corp. 5.03 34.03 2.97
Fed One Bancorp 4.36 35.70 3.16
Fidelity Bancorp, Inc. 4.70 31.55 2.46
Laurel Capital Group, Inc. 4.45 38.64 3.56
Newnan Savings Bank, FSB 4.78 36.90 3.42
Pinnacle Bank 4.88 37.90 2.89
SFS Bancorp, Inc. 4.50 25.71 2.86
First Shenango Bancorp, Inc. 4.78 38.52 2.92
SJS Bancorp 5.00 19.79 2.39
WVS Financial Corporation 4.50 40.80 3.25
5.22 41.76 3.80
4.04 19.79 2.39
4.69 34.87 3.10
4.74 37.05 3.07
</TABLE>
Source: SNL and F&C calculations.
23
<PAGE>
FERGUSON & CO., LLP Exhibit II.5-Comparatives Pricing
- -------------------
<TABLE>
<CAPTION>
Current Current Price/ Current Current
Stock Market LTM Price/ Price/Tang Price/
Price Value Core EPS Book Value Book Value Assets
Ticker Name City State ($) ($M) (x) (%) (%) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC FrstGeorgiaHldg-GA Brunswick GA 7.000 14.01 12.73 143.74 163.55 10.27
FIBC FinancialBancp-NY Long Island City NY 13.250 24.82 19.49 94.44 94.98 10.68
FLAG FLAGFinCp-GA LaGrange GA 13.500 25.87 15.34 141.66 141.66 11.14
FOBC FedOneBancorp-WV Wheeling WV 15.125 37.65 12.50 91.50 96.65 11.09
FSBI FidelityBncrp-PA Pittsburgh PA 17.500 21.69 14.00 95.26 96.31 7.54
LARL LaurelCapitalGp-PA Allison Park PA 16.000 24.12 10.13 119.58 119.58 12.52
NFSL NewnanSvgsBk-GA Newnan GA 18.000 26.04 9.78 139.97 140.85 16.21
PLE PinnacleBank-AL Jasper AL 16.375 14.57 10.70 97.24 100.96 7.50
SFED SFSBancorp-NY Schenectady NY 12.750 17.79 15.18 76.44 76.44 10.74
SHEN FstShenangoBcp-PA New Castle PA 20.500 47.31 14.96 100.49 100.49 13.30
SJSB SJSBancorp-MI St. Joseph MI 19.000 18.09 19.00 102.70 102.70 12.58
WVFC WVSFinancialCp-PA Pittsburgh PA 21.250 36.90 12.72 102.61 102.61 16.02
Maximum 21.250 47.31 19.49 143.74 163.55 16.21
Minimum 7.000 14.01 9.78 76.44 76.44 7.50
Average 15.854 25.74 13.88 108.80 111.40 11.63
Median 16.188 24.47 13.37 101.55 101.79 11.12
</TABLE>
<TABLE>
<CAPTION>
Current Total
Dividend Assets
Yield ($000)
Ticker Name City State (%) Mst RctQ
<C> <S> <C> <C> <C> <C>
FGHC FrstGeorgiaHldg-GA Brunswick GA - 135,582
FIBC FinancialBancp-NY Long Island City NY 2.26 243,450
FLAG FLAGFinCp-GA LaGrange GA 2.22 232,105
FOBC FedOneBancorp-WV Wheeling WV 3.57 339,562
FSBI FidelityBncrp-PA Pittsburgh PA 1.83 287,465
LARL LaurelCapitalGp-PA Allison Park PA 2.00 192,654
NFSL NewnanSvgsBk-GA Newnan GA 2.22 160,656
PLE PinnacleBank-AL Jasper AL 4.40 194,311
SFED SFSBancorp-NY Schenectady NY - 165,569
SHEN FstShenangoBcp-PA New Castle PA 1.95 355,710
SJSB SJSBancorp-MI St. Joseph MI 2.11 143,857
WVFC WVSFinancialCp-PA Pittsburgh PA 1.88 230,276
Maximum 4.40 355,710
Minimum - 135,582
Average 2.04 223,433
Median 2.05 212,294
</TABLE>
Source: SNL and F&C calculations.
24
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit 11.5 - Comparatives Pricing
<TABLE>
<CAPTION>
Tangible Return on ROACE Return on
Equity/ Equity/ Core Avg Assets Before NPAs/ Price/ Core Avg Assets
Assets Tang Assets EPS Before Extra Extra Merger Current Assets Core EPS Before Extra
(%) (%) ($) (%) (%) Target? Pricing (%) EPS ($) (%)
Ticker Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Date Mst RctQ (x) Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC 8.30 7.36 0.55 0.89 11.09 N 04/30/96 1.42 14.58 0.12 0.79
FIBC 11.31 11.25 0.68 0.61 4.70 N 04/30/96 2.78 12.74 0.26 0.84
FLAG 8.92 8.92 0.88 0.87 9.78 N 04/30/96 1.86 19.85 0.17 0.76
FOBC 12.12 11.55 1.21 1.00 7.74 N 04/30/96 0.14 12.60 0.30 0.96
FSBI 7.91 7.83 1.25 0.57 7.31 N 04/30/96 0.52 12.87 0.34 0.58
LARL 10.47 10.47 1.58 1.35 13.39 N 04/30/96 0.77 10.00 0.40 1.35
NFSL 11.58 11.51 1.84 1.89 17.69 N 04/30/96 0.67 10.71 0.42 1.87
PLE 7.71 7.45 1.53 0.77 10.29 N 04/30/96 0.27 9.52 0.43 0.87
SFED 14.06 14.06 0.84 0.63 5.06 N 04/30/96 0.63 15.18 0.21 0.70
SHEN 13.24 13.24 1.37 1.01 7.19 N 04/30/96 0.48 14.64 0.35 1.10
SJSB 12.25 12.25 1.00 0.68 5.67 N 04/30/96 NA 19.00 0.25 0.69
WVFC 15.62 15.62 1.67 1.18 7.77 N 04/30/96 0.75 9.49 0.56 2.12
Maximum 15.62 15.62 1.84 1.89 17.69 2.78 19.85 0.56 2.12
Minimum 7.71 7.36 0.55 0.57 4.70 0.14 9.49 0.12 0.58
Average 11.12 10.96 1.20 0.95 8.97 0.94 13.43 0.32 1.05
Median 11.45 11.38 1.23 0.88 7.76 0.67 12.81 0.32 0.86
<CAPTION>
ROACE
Before
Extra
(%)
Ticker Mst RctQ
<S> <C>
FGHC 9.24
FIBC 7.08
FLAG 8.11
FOBC 7.69
FSBI 7.36
LARL 12.97
NFSL 16.31
PLE 11.32
SFED 4.86
SHEN 7.95
SJSB 5.56
WVFC 14.03
Maximum 16.31
Minimum 4.86
Average 9.37
Median 8.03
</TABLE>
Source: SNL and F&C calculations.
25
<PAGE>
FERGUSON & CO., LLP Exhibit II.6 - Comparatives Balance Sheet
- -------------------
<TABLE>
<CAPTION>
Total Total Mortgage- Mortgage Net Investment &
Total Cash and Cash and Inv Backed Back Sec Net Loans Foreclosed
Assets Investments As % of Securities As % of Loans As a % of Real Estate
($000) ($000) Assets ($000) Assets ($000) Assets ($000)
Ticker Short Name Mst RctQ Mst RctQ (%) Mst RctQ (%) Mst RctQ (%) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC First Georgia Holding, Inc. 135,582 14,826 10.94 3,6 2.67 113,968 84.06 239
FIBC Financial Bancorp, Inc. 243,450 113,775 46.73 58,923 24.20 120,411 49.46 4,284
FLAG FLAG Financial Corp. 232,105 68,406 29.47 21,638 9.32 149,885 64.58 801
FOBC Fed One Bancorp 339,562 206,806 60.90 120,103 35.37 121,682 35.83 38
FSBI Fidelity Bancorp, Inc. 287,465 153,473 53.39 77,032 26.80 125,780 43.75 1,024
LARL Laurel Capital Group, Inc. 192,654 44,410 23.05 12,067 6.26 143,095 74.28 280
NFSL Newnan Savings Bank, FSB 160,656 23,852 14.85 1,484 0.92 123,233 76.71 3,972
PLE Pinnacle Bank 194,311 67,883 34.94 29,731 15.30 119,246 61.37 99
SFED SFS Bancorp, Inc. 165,569 58,608 35.40 23,723 14.33 103,977 62.80 200
SHEN First Shenango Bancorp, Inc. 355,710 120,896 33.99 30,485 8.57 222,897 62.66 1,117
SJSB SJS Bancorp 143,857 53,039 36.87 12,568 8.74 N/A N/A 0
WVFC WVS Financial Corporation 230,276 85,048 36.93 8,073 3.51 140,495 61.01 15
Maximum 355,710 206,806 60.90 120,103 35.37 222,897 84.06 4,284
Minimum 135,582 14,826 10.94 1,484 0.92 103,977 35.83 0
Average 223,433 84,252 34.79 33,287 13.00 134,970 61.50 1,006
Median 212,294 68,145 36.17 22,681 9.03 123,233 62.66 260
</TABLE>
Source: SNL and F&C calculations.
26
<PAGE>
FERGUSON & CO., LLP Exhibit II.6 Comparatives Balance Sheet
- -------------------
<TABLE>
<CAPTION>
Loan Total Total
Servicing Total Other Total Deposits Total Borrowings Other Total Common
Rights Intangibles Assets Deposits As a % of Borrowings As a % of Liabilities Liabilities Equity
($000) ($000) ($000) ($000) Total Assets ($000) Total Assets ($000) ($000) ($000)
Ticker Mst RctQ Mst RctQ Mst RctQ Mst RctQ (%) Mst RctQ (%) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC 0 1,375 5,174 108,093 79.73 13,990 10.32 2,243 124,326 11,256
FIBC 0 156 4,824 189,560 77.86 23,264 9.56 3,091 215,915 27,535
FLAG 1,456 0 11,526 177,848 76.62 29,504 12.71 4,055 211,407 20,698
FOBC 0 2,182 8,854 247,999 73.03 47,670 14.04 2,753 298,422 41,140
FSBI 0 242 6,946 245,548 85.42 15,850 5.51 3,326 264,724 22,741
LARL 0 0 3,291 162,281 84.23 6,328 3.28 3,872 172,481 20,173
NFSL 0 122 4,401 127,566 79.40 13,053 8.12 1,432 142,051 18,605
PLE 97 552 5,177 162,932 83.85 13,850 7.13 2,546 179,328 14,983
SFED 0 0 2,784 139,776 84.42 - - 2,519 142,295 23,274
SHEN 0 0 6,830 257,820 72.48 46,541 13.08 4,259 308,620 47,090
SJSB 0 0 2,970 108,873 75.68 15,750 10.95 1,615 126,238 17,619
WVFC 0 0 4,718 171,447 74.45 18,000 7.82 4,871 194,318 35,958
Maximum 1,456 2,182 11,526 257,820 85.42 47,670 14.04 4,871 308,620 47,090
Minimum 0 0 2,784 108,093 72.48 - 0.00 1,432 124,326 11,256
Average 129 386 5,625 174,979 78.93 20,317 8.54 3,049 198,344 25,089
Median 0 61 4,999 167,190 78.63 15,800 8.84 2,922 186,823 21,720
</TABLE>
Source: SNL and F&C calculations.
27
<PAGE>
FERGUSON & CO., LLP Exhibit II.6-Comparatives Balance Sheet
- -------------------
<TABLE>
<CAPTION>
Regulatory Regulatory Regulatory Loan Loss Publicly
Total Tangible Core Total Tangible Core Risk-Based NPAs/ Reserves/ Reserves/ Reported
Equity Capital Capital Capital Capital/ Capital/ Capital/ Assets Assets NPLs Book Value
($000) ($000) ($000) ($000) Tangible Adj Tangible Risk-Weightd (%) (%) (%) ($)
Ticker Mst RctQ Mst RctQ Mst RctQ Mst RctQ Assets (%) Assets (%) Assets (%) Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FGHC 11,256 10,010 11,385 12,393.00 7.46 8.40 11.38 1.42 0.74 59.61 4.87
FIBC 27,535 17,558 17,558 17,565.00 7.48 7.48 19.76 2.78 0.53 48.59 14.03
FLAG 20,698 20,301 20,301 21,348.00 8.72 8.72 14.19 1.86 0.58 38.04 9.53
FOBC 41,140 34,258 34,258 35,595.00 10.43 10.43 27.57 0.14 0.42 319.64 16.53
FSBI 22,741 NA 22,180 23,550.00 NA NA NA 0.52 0.48 290.04 18.37
LARL 20,173 NA 19,667 20,924.00 NA NA NA 0.77 0.98 157.44 13.38
NFSL 18,605 18,385 18,385 19,546.00 11.50 11.50 17.59 0.67 0.87 146.16 12.86
PLE 14,983 14,373 14,373 15,574.00 7.42 7.42 14.03 0.27 0.62 289.95 16.84
SFED 23,274 17,175 17,175 17,794.00 10.18 10.18 21.49 0.63 0.37 73.69 16.68
SHEN 47,090 36,629 36,629 38,983.00 11.10 11.10 20.22 0.48 0.71 416.28 20.40
SJSB 17,619 13,705 13,705 14,181.00 9.55 9.55 19.79 NA 0.50 NA 18.50
WVFC 35,958 NA 35,968 37,259.00 NA NA NA 0.75 0.82 110.92 20.71
Maximum 47,090 36,629 36,629 38,983.00 11.50 11.50 27.57 2.78 0.98 416.28 20.71
Minimum 11,256 10,010 11,385 12,393.00 7.42 7.42 11.38 0.14 0.37 38.04 4.87
Average 25,089 20,266 21,799 22,892.67 9.32 9.42 18.45 0.94 0.64 177.31 15.23
Median 21,720 17,558 19,026 20,235.00 9.55 9.55 19.76 0.67 0.60 146.16 16.61
</TABLE>
Source: SNL and F&C calculations.
28
<PAGE>
FERGUSON & CO., LLP Exhibit II.6 - Comparatives Balance Sheet
- -------------------
<TABLE>
<CAPTION>
Tangible Earn Assets/ Full-Time Loans
Publicly Rep Int Bearing Equivalent Serviced
Book Value Liabilities Employees For Others
($) (%) (Actual) ($000)
Ticker Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
FGHC 4.28 100.65 72.0 0
FIBC 13.95 113.88 54.0 11,417
FLAG 9.53 105.87 91.0 249,309
FOBC 15.65 114.59 128.0 11,393
FSBI 18.17 112.99 94.0 7,533
LARL 13.38 112.92 50.0 1,324
NFSL 12.78 114.81 NA 128,873
PLE 16.22 105.97 78.0 98,857
SFED 16.68 116.13 55.0 4,768
SHEN 20.40 115.34 103.0 1,869
SJSB 18.50 113.86 NA 51,186
WVFC 20.71 120.49 57.0 747
Maximum 20.71 120.49 128.0 249,309.00
Minimum 4.28 100.65 50.0 -
Average 15.02 112.29 78.2 47,273.00
Median 15.94 113.87 75.0 9,463.00
</TABLE>
Source: SNL and F&C calculations.
29
<PAGE>
FERGUSON & CO., LLP Exhibit II.7 - Comparatives Risk Characteristics
- -------------------
<TABLE>
<CAPTION>
NPAs + Loans Net Loan
NPAs/ 90+ Pst Due/ NPAs/ Reserves/ Reserves/ Chargeoffs/ Loans/
Assets Assets Equity Loans NPAs Avg Loans Assets
(%) (%) (%) (%) (%) (%) (%)
Ticker Short Name Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C>
FGHC First Georgia Holding, Inc. 1.42 1.50 17.15 0.88 52.23 0.05 84.80
FIBC Financial Bancorp, Inc. 2.78 2.88 24.55 1.07 19.19 - 49.99
FLAG FLAG Financial Corp. 1.86 1.86 20.88 0.89 30.99 1.07 65.17
FOBC Fed One Bancorp 0.14 0.28 1.18 1.16 294.65 0.15 36.26
FSBI Fidelity Bancorp, Inc. 0.52 0.52 6.58 1.08 91.51 0.30 44.23
LARL Laurel Capital Group, Inc. 0.77 0.77 7.35 1.29 127.71 0.02 76.08
NFSL Newnan Savings Bank, FSB 0.67 0.67 5.80 1.07 128.82 0.07 80.73
PLE Pinnacle Bank 0.27 0.27 3.45 1.00 234.43 0.26 62.64
SFED SFS Bancorp, Inc. 0.63 0.71 4.47 0.59 59.52 (0.07) 63.17
SHEN First Shenango Bancorp, Inc. 0.48 0.49 3.66 1.10 146.72 0.29 64.49
SJSB SJS Bancorp NA NA NA 0.81 NA 0.19 61.56
WVFC WVS Financial Corporation 0.75 0.75 4.80 1.33 109.96 - 61.84
Maximum 2.78 2.88 24.55 1.33 294.65 1.07 84.80
Minimum 0.14 0.27 1.18 0.59 19.19 (0.07) 36.26
Average 0.94 0.97 9.08 1.02 117.79 0.19 62.58
Median 0.67 0.71 5.80 1.07 109.96 0.11 62.91
</TABLE>
<TABLE>
<CAPTION>
One Year Intangible
Cum Gap/ Assets
Assets Equity
(%) (%)
Ticker Short Name Mst RctQ Mst RctQ
<S> <C> <C>
FGHC First Georgia Holding, Inc. 12.25 12.22
FIBC Financial Bancorp, Inc. NA 0.57
FLAG FLAG Financial Corp. 1.72 -
FOBC Fed One Bancorp 7.69 5.30
FSBI Fidelity Bancorp, Inc. (12.70) 1.06
LARL Laurel Capital Group, Inc. (0.67) -
NFSL Newnan Savings Bank, FSB NA 0.66
PLE Pinnacle Bank NA 3.68
SFED SFS Bancorp, Inc. NA -
SHEN First Shenango Bancorp, Inc. NA -
SJSB SJS Bancorp NA -
WVFC WVS Financial Corporation (14.71) -
Maximum 12.25 12.22
Minimum (14.71) -
Average (1.07) 1.96
Median 0.53 0.29
</TABLE>
<PAGE>
FERGUSON & CO., LLP Exhibit II.7 - Comparatives Risk Characteristics
- -------------------
<TABLE>
<CAPTION>
Earn Assets/
Net Int Bearing
Loans Liabilities
($000) (%)
Short Name Mst RctQ Mst RctQ
<S> <C> <C>
First Georgia Holding, Inc. 113,968 100.65
Financial Bancorp, Inc. 120,411 113.88
FLAG Financial Corp. 149,885 105.87
Fed One Bancorp 121,682 114.59
Fidelity Bancorp, Inc. 125,780 112.99
Laurel Capital Group, Inc. 143,095 112.92
Newnan Savings Bank, FSB 123,233 114.81
Pinnacle Bank 119,246 105.97
SFS Bancorp, Inc. 103,977 116.13
First Shenango Bancorp, Inc. 222,897 115.34
SJS Bancorp NA 113.86
WVS Financial Corporation 140,495 120.49
222,897 120.49
103,977 100.65
134,970 112.29
123,233 113.87
</TABLE>
Source: SNL and F&C calculations.
31
<PAGE>
EXHIBIT III
<PAGE>
FERGUSON & CO., LLP Exhibit III
- -------------------
HOME SAVINGS BANK
ALBEMARLE, NORTH CAROLINA
<TABLE>
<CAPTION>
1992 1993 1994 1995
Number of Open Quarters 4 4 4 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
BALANCE SHEET:
<S> <C> <C> <C> <C>
Total Assets 161,092 157,320 144,391 163,975
% Change in Assets - (2.34) (8.22) 13.56
Securities-Book Value 29,620 26,347 30,731 35,842
Securities-Fair Value 30,184 26,349 30,657 36,049
Total Loans & Leases 116,608 113,059 107,781 108,449
Total Deposits 143,363 139,118 124,417 141,513
Loan/Deposit Ratio 81.34 81.27 86.63 76.64
Provision for Loan Losses - - - -
CAPITAL:
Equity Capital 13,867 16,749 18,745 20,928
Total Qualifying Capital(Est) 14,012 16,893 19,300 20,887
Equity Capital/Average Assets 8.61 10.52 12.35 13.52
Tot Qual Cap/Rk Bsd Asts(Est) 18.30 22.62 28.49 29.66
Tier 1 Cap/Rsk Bsed Asts(Est) 18.11 22.43 28.29 29.48
T1 Cap/Avg Assets(Lev Est) 8.74 10.61 13.17 12.86
Dividends Declared/Net Income - - - -
PROFITABILITY:
Net Income(Loss) 2,429 2,882 2,414 1,595
Return on Average Assets 1.51 1.81 1.59 1.03
Return on Average Equity Cap 17.52 18.83 13.46 7.98
Net Interest Margin 4.07 4.74 4.78 3.70
Net Int Income/Avg Assets 3.91 4.57 4.63 3.63
Noninterest Income/Avg Assets 0.15 0.13 0.10 0.08
Noninterest Exp/Avg Assets 1.58 1.47 2.19 2.10
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 1.61 1.49 1.52 1.34
NPA's/Equity + LLR 13.39 10.01 8.69 6.90
LLR/Nonperforming Loans 8.41 9.16 9.32 9.37
Foreclosed RE/Total Assets 0.09 0.08 0.12 0.05
90+ Day Del Loans/Total Loans 1.48 1.39 1.36 1.27
Loan Loss Reserves/Total Lns 0.12 0.13 0.13 0.12
Net Charge-Offs/Average Loans (0.00) 0.00 0.01 0.01
Dom Risk R/E Lns/Tot Dom Lns 7.61 8.21 8.10 7.75
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 6.28 7.69 6.90 9.46
Int Earn Assets/Int Bear Liab 107.51 109.28 113.12 113.19
Pledged Sec/Total Sec 3.38 3.80 6.21 5.58
Fair Value Sec/Amort Cost Sec 101.90 100.01 97.75 101.25
</TABLE>
Source: Sheshunoff Information Services, Inc.
1
<PAGE>
EXHIBIT IV
<PAGE>
FERGUSON & CO., LLP Exhibit IV
FIRST GEORGIA BANK
BRUNSWICK, GEORGIA
FGHC
<TABLE>
<CAPTION>
1992 1993 1994 1995
Num of Quarters Open for Period 4 4 4 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 142,245 134,691 135,835 135,582
% Change in Assets 0.04 (5.31) 0.85 (0.19)
Total Loans 121,574 109,685 115,837 113,894
Mortgage Loans Serv for Others - - - -
Mortgage Loans Serv by Others - 7,171 3,165 3,012
Total Savings Deposits 114,036 108,222 107,127 108,948
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 8,534 9,361 10,397 11,384
GAAP Capital 8,534 9,361 10,397 11,384
Tangible Capital 6,594 7,573 8,752 10,009
Core Capital 8,242 9,361 10,397 11,384
Risk-Based Capital 9,326 10,363 11,300 12,392
Equity Capital/Total Assets 6.00 6.95 7.65 8.40
Core Cap/Risk Based Assets 8.48 8.78 9.13 10.46
Core Cap/Adj Tangible Assets 5.81 6.95 7.65 8.40
Tangible Cap/Tangible Assets 4.70 5.70 6.52 7.46
Risk-Based Cap/Risk-Wt Assets 9.59 9.72 9.92 11.38
PROFITABILITY:
Net Income(Loss) 657 920 1,204 1,250
Ret on Avg Assets Bef Ext Item 0.46 0.51 0.89 0.91
Return on Avg GAAP Capital 8.16 7.87 12.23 11.39
Net Interest Income/Avg Assets 3.36 3.71 3.49 3.64
Noninterest Income/Avg Assets 0.94 0.50 0.89 0.90
Noninterest Expense/Avg Assets 3.31 3.03 3.04 3.01
Yield/Cost Spread 3.77 4.10 3.87 3.92
LIQUIDITY:
Int Earn Assets/Int Bear Liab 105.92 102.25 104.20 107.10
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity - 12,556 7,543 7,837
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 3.83 2.46 3.47 1.98
Nonaccrual Loans/Gross Loans 2.72 1.80 2.89 1.44
Nonaccrual Loans/Loan Loss Res 307.75 200.70 376.41 167.76
Reposs Assets/Total Assets 0.54 0.40 0.23 0.18
Net Chrg-Offs/Avg Adj Lns 0.22 0.19 0.09 0.11
Non 1-4 Con/Conv Lns/Tot Assts 14.89 22.33 27.57 28.63
</TABLE>
Source: Sheshunoff Information Services Inc.
1
<PAGE>
FERGUSON & C0., LLP Exhibit IV
FINANCIAL FS&LA
NEW YORK CITY, NEW YORK
FIBC
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1992 1993 1994 1995
Num of Quarters Open for Period 4 4 4 4
FINANCIAL HIGHLIGHTS
<CAPTION>
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 156,285 151,097 180,050 238,076
% Change in Assets 2.16 (3.32) 19.16 32.23
Total Loans 89,213 79,577 84,268 118,339
Mortgage Loans Serv for Others 19,641 15,872 13,185 -
Mortgage Loans Serv by Others 18,820 14,180 12,193 24,190
Total Savings Deposits 146,009 139,657 153,514 190,584
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 8,024 9,658 19,651 20,683
GAAP Capital 8,024 9,658 19,651 20,683
Tangible Capital 6,501 7,946 17,748 17,558
Core Capital 6,501 7,946 17,748 17,558
Risk-Based Capital 6,391 7,601 17,237 17,565
Equity Capital/Total Assets 5.13 6.39 10.91 8.69
Core Cap/Risk Based Assets 9.96 13.36 28.24 19.75
Core Cap/Adj Tangible Assets 4.20 5.33 10.02 7.48
Tangible Cap/Tangible Assets 4.20 5.33 10.02 7.48
Risk-Based Cap/Risk-Wt Assets 9.79 12.78 27.42 19.76
PROFITABILITY:
Net Income(Loss) 1,338 1,634 1,339 1,384
Ret on Avg Assets Bef Ext Item 0.87 0.95 0.80 0.64
Return on Avg GAAP Capital 18.19 16.58 9.89 6.95
Net Interest Income/Avg Assets 3.98 4.23 4.01 3.71
Noninterest Income/Avg Assets 0.45 0.69 0.17 0.07
Noninterest Expense/Avg Assets 2.61 2.78 2.70 2.39
Yield/Cost Spread 4.25 4.48 4.14 3.73
LIQUIDITY:
Int Earn Assets/Int Bear Liab 101.05 102.78 116.64 107.44
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 11,344 15,509 31,769 26,005
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 5.47 6.61 4.44 3.63
Nonaccrual Loans/Gross Loans 3.02 2.42 1.83 1.44
Nonaccrual Loans/Loan Loss Res 958.16 190.06 137.76 134.70
Reposs Assets/Total Assets 0.31 0.50 0.19 0.24
Net Chrg-Offs/Avg Adj Lns 0.60 0.06 0.04 0.21
Non 1-4 Con/Conv Lns/Tot Assts 3.17 3.89 4.72 5.96
</TABLE>
Source: Sheshunoff Information Services Inc.
2
<PAGE>
FERGUSON & CO., LLP Exhibit IV
FIRST FSB OF LA GRANGE
LA GRANGE, GEORGIA
FLAG
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1992 1993 1994 1995
Num of Quarters Open for Period 4 4 4 4
FINANCIAL HIGHLIGHTS
<CAPTION>
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 188,190 207,559 231,939 232,411
% Change in Assets 1.66 10.29 11.75 0.20
Total Loans 142,559 138,519 143,254 151,265
Mortgage Loans Serv for Others 116,864 148,699 273,102 249,309
Mortgage Loans Serv by Others 1,344 1,785 6,615 5,714
Total Savings Deposits 153,901 165,005 165,850 178,200
Broker Originated Deposits - - 1,287.00 3,491.00
CAPITAL:
Equity Capital 18,226 19,891 18,929 20,494
GAAP Capital 18,226 19,891 18,929 20,494
Tangible Capital 18,226 19,891 18,765 20,301
Core Capital 18,226 19,891 18,765 20,301
Risk-Based Capital 18,904 20,772 19,411 21,348
Equity Capital/Total Assets 9.68 9.58 8.16 8.82
Core Cap/Risk Based Assets 16.13 16.64 13.70 13.50
Core Cap/Adj Tangible Assets 9.69 9.58 8.10 8.72
Tangible Cap/Tangible Assets 9.69 9.58 8.10 8.72
Risk-Based Cap/Risk-Wt Assets 16.73 17.37 14.17 14.19
PROFITABILITY:
Net Income(Loss) 1,611 2,166 1,770 2,140
Ret on Avg Assets Bef Ext Item 0.86 1.09 0.78 0.92
Return on Avg GAAP Capital 9.17 11.36 9.05 10.28
Net Interest Income/Avg Assets 3.71 3.45 2.86 2.98
Noninterest Income/Avg Assets 0.77 1.07 1.28 1.49
Noninterest Expense/Avg Assets 2.63 2.68 2.76 2.94
Yield/Cost Spread 3.81 3.68 2.97 3.14
LIQUIDITY:
Int Earn Assets/Int Bear Liab 106.57 105.28 108.67 107.33
Brokered Deposits/Tot Deposits - - 0.78 1.96
Amt Eligible as Reg Liquidity 12,019 16,185 16,394 18,414
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 3.41 4.21 3.04 3.00
Nonaccrual Loans/Gross Loans 1.87 2.34 1.59 0.89
Nonaccrual Loans/Loan Loss Res 394.44 362.43 185.69 85.52
Reposs Assets/Total Assets 0.12 0.20 0.11 0.48
Net Chrg-Offs/Avg Adj Lns 0.32 0.17 0.04 0.06
Non 1-4 Con/Conv Lns/Tot Assts 7.72 8.79 10.37 12.67
</TABLE>
Source: Sheshunoff Information Services Inc.
3
<PAGE>
FERGUSON & CO., LLP Exhibit IV
<TABLE>
<CAPTION>
FED ONE BANK
WHEELING, WEST VIRGINIA
FOBC
1992 1993 1994 1995
Num of Quarters Open for Period 4 4 4 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 237,817 248,336 303,932 328,525
% Change in Assets 0.45 4.42 22.39 8.09
Total Loans 107,799 108,576 113,257 120,447
Mortgage Loans Serv for Others 19,353 15,797 13,389 11,783
Mortgage Loans Serv by Others 13,103 8,510 6,484 6,255
Total Savings Deposits 188,935 184,602 238,850 242,056
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 24,044 26,852 28,719 36,265
GAAP Capital 24,044 26,852 28,719 36,265
Tangible Capital 22,498 25,428 26,654 33,983
Core Capital 24,044 26,852 27,784 33,983
Risk-Based Capital 25,311 28,208 29,121 35,345
Equity Capital/Total Assets 10.11 10.81 9.45 11.04
Core Cap/Risk Based Assets 22.47 24.76 23.54 26.51
Core Cap/Adj Tangible Assets 10.20 10.89 9.22 10.43
Tangible Cap/Tangible Assets 9.54 10.32 8.84 10.43
Risk-Based Cap/Risk-Wt Assets 23.65 26.01 24.68 27.57
PROFITABILITY:
Net Income(Loss) 1,684 3,164 2,864 3,129
Ret on Avg Assets Bef Ext Item 0.71 1.09 1.01 1.00
Return on Avg GAAP Capital 8.02 10.44 10.32 8.99
Net Interest Income/Avg Assets 3.39 3.82 3.54 3.56
Noninterest Income/Avg Assets 0.35 0.28 0.21 0.23
Noninterest Expense/Avg Assets 2.49 2.24 2.12 2.19
Yield/Cost Spread 3.38 3.79 3.53 3.47
LIQUIDITY:
Int Earn Assets/Int Bear Liab 109.11 110.77 108.69 111.36
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 24,358 30,472 28,982 56,617
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 2.19 0.81 0.93 1.00
Nonaccrual Loans/Gross Loans 0.42 0.39 0.54 0.61
Nonaccrual Loans/Loan Loss Res 35.62 29.76 42.95 50.37
Reposs Assets/Total Assets 0.63 0.04 0.02 0.01
Net Chrg-Offs/Avg Adj Lns 0.27 0.09 0.12 0.07
Non 1-4 Con/Conv Lns/Tot Assts 8.73 8.04 4.92 3.87
</TABLE>
Source: Sheshunoff Information Services Inc.
4
<PAGE>
Exhibit IV
FERGUSON & CO., LLP
FIDELITY SAVINGS BANK
PITTSBURGH, PENNSYLVANIA
FSBI
<TABLE>
<CAPTION>
1992 1993 1994 1995
Number of Open Quarters 4 4 4 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 257,618 268,736 276,779 287,018
% Change in Assets 1.81 4.32 2.99 3.70
Securities-Book Value 134,764 150,773 150,498 148,323
Securities-Fair Value 135,159 151,661 141,382 148,320
Total Loans & Leases 110,750 107,214 115,587 127,256
Total Deposits 237,449 238,064 229,189 248,279
Loan/Deposit Ratio 46.64 45.04 50.43 51.26
Provision for Loan Losses 483 640 360 170
CAPITAL:
Equity Capital 17,237 19,521 20,458 22,423
Total Qualifying Capital(Est) 17,104 19,894 21,736 23,084
Equity Capital/Average Assets 6.75 7.42 7.49 7.97
Tot Qual Cap/Rk Bsd Asts(Est) 13.94 16.21 16.76 16.98
Tier 1 Cap/Rsk Bsed Asts(Est) 13.21 15.28 15.72 15.97
T1 Cap/Avg Assets(Lev Est) 6.28 7.01 7.39 7.64
Dividends Declared/Net Income 14.69 11.38 20.25 34.33
PROFITABILITY:
Net Income(Loss) 1,715 2,549 1,679 1,602
Return on Average Assets 0.67 0.97 0.61 0.57
Return on Average Equity Cap 10.44 13.87 8.34 7.46
Net Interest Margin 3.09 3.36 3.05 3.00
Net Int Income/Avg Assets 3.01 3.30 2.98 2.86
Noninterest Income/Avg Assets 0.19 0.22 0.20 0.20
Noninterest Exp/Avg Assets 2.14 2.17 2.09 2.17
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 1.60 1.87 1.41 1.91
NPA's/Equity + LLR 9.83 9.73 7.50 10.33
LLR/Nonperforming Loans 69.74 67.87 100.52 112.40
Foreclosed RE/Total Assets 0.19 0.12 0.11 0.43
90+ Day Del Loans/Total Loans - - - -
Loan Loss Reserves/Total Lns 0.81 1.07 1.17 1.08
Net Charge-Offs/Average Loans 0.27 0.37 0.13 0.12
Dom Risk R/E Lns/Tot Dom Lns 21.68 22.17 24.03 22.51
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 4.37 4.16 4.42 7.69
Int Earn Assets/Int Bear Liab 106.50 107.91 108.09 108.40
Pledged Sec/Total Sec 1.11 1.33 0.66 2.00
Fair Value Sec/Amort Cost Sec 100.29 100.59 93.53 100.45
</TABLE>
Source: Sheshunoff Information Services Inc.
5
<PAGE>
FERGUSON & CO., LLP Exhibit IV
LAUREL SAVINGS BANK
ALLISON PARK, PENNSYLVANIA
LARL
<TABLE>
<CAPTION>
1992 1993 1994 1995
Number of Open Quarters - - - 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets - - - 192,698
% Change in Assets - - - -
Securities-Book Value - - - 32,839
Securities-Fair Value - - - 32,927
Total Loans & Leases - - - 146,566
Total Deposits - - - 164,943
Loan/Deposit Ratio - - - 88.86
Provision for Loan Losses - - - 68.00
CAPITAL:
Equity Capital - - - 19,921
Total Qualifying Capital(Est) - - - 20,320
Equity Capital/Average Assets - - - 10.63
Tot Qual Cap/Rk Bsd Asts(Est) - - - 19.68
Tier 1 Cap/Rsk Bsed Asts(Est) - - - 18.43
T1 Cap/Avg Assets(Lev Est) - - - 9.98
Dividends Declared/Net Income - - - -
PROFITABILITY:
Net Income(Loss) - - - 2,525
Return on Average Assets - - - 1.35
Return on Average Equity Cap - - - 13.55
Net Interest Margin - - - 4.07
Net Int Income/Avg Assets - - - 4.01
Noninterest Income/Avg Assets - - - 0.21
Noninterest Exp/Avg Assets - - - 2.05
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE - - - 0.73
NPA's/Equity + LLR - - - 4.94
LLR/Nonperforming Loans - - - 237.34
Foreclosed RE/Total Assets - - - 0.15
90+ Day Del Loans/Total Loans - - - -
Loan Loss Reserves/Total Lns - - - 1.29
Net Charge-Offs/Average Loans - - - 0.03
Dom Risk R/E Lns/Tot Dom Lns - - - 8.51
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep - - - 3.32
Int Earn Assets/Int Bear Liab - - - 115.84
Pledged Sec/Total Sec - - - -
Fair Value Sec/Amort Cost Sec - - - 101.46
</TABLE>
Source: Sheshunoff Information Services Inc.
6
<PAGE>
FERGUSON & CO., LLP Exhibit IV
NEWNAN SAVINGS BANK, FSB
NEWNAN, GEORGIA
NFSL
<TABLE>
<CAPTION>
1992 1993 1994 1995
Num of Quarters Open for Period 4 4 4 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 127,705 139,094 158,795 161,240
% Change in Assets (3.34) 8.92 14.16 1.54
Total Loans 83,396 103,323 131,962 131,169
Mortgage Loans Serv for Others 104,217 126,193 139,178 128,873
Mortgage Loans Serv by Others - 1,230 1,078 -
Total Savings Deposits 112,134 111,604 112,234 127,950
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 13,818 14,938 15,913 18,606
GAAP Capital 13,818 14,938 15,913 18,606
Tangible Capital 12,002 13,418 14,398 18,385
Core Capital 12,002 13,418 14,398 18,385
Risk-Based Capital 12,939 14,252 15,602 19,546
Equity Capital/Total Assets 10.82 10.74 10.02 11.54
Core Cap/Risk Based Assets 15.01 14.82 12.98 16.54
Core Cap/Adj Tangible Assets 9.54 9.76 9.18 11.50
Tangible Cap/Tangible Assets 9.54 9.76 9.18 11.50
Risk-Based Cap/Risk-Wt Assets 16.18 15.74 14.06 17.59
PROFITABILITY:
Net Income(Loss) 1,772 1,110 1,072 3,039
Ret on Avg Assets Bef Ext Item 1.36 0.64 0.71 1.83
Return on Avg GAAP Capital 13.54 5.98 6.97 17.51
Net Interest Income/Avg Assets 3.42 3.43 3.34 3.55
Noninterest Income/Avg Assets 2.02 1.05 1.17 1.72
Noninterest Expense/Avg Assets 3.30 3.26 3.36 2.65
Yield/Cost Spread 3.48 3.50 3.36 3.52
LIQUIDITY:
Int Earn Assets/Int Bear Liab 105.93 106.27 106.22 115.53
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 13,216 8,888 7,192 7,600
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 3.69 4.22 2.04 1.40
Nonaccrual Loans/Gross Loans 2.12 1.60 1.14 0.58
Nonaccrual Loans/Loan Loss Res 148.79 133.85 109.98 60.22
Reposs Assets/Total Assets 0.50 0.70 0.12 0.08
Net Chrg-Offs/Avg Adj Lns 0.04 0.24 0.03 0.05
Non 1-4 Con/Conv Lns/Tot Assts 13.96 15.30 12.70 12.73
</TABLE>
Source: Sheshunoff Information Services Inc.
7
<PAGE>
FERGUSON & CO., LLP Exhibit IV
FIRST FEDERAL OF AL, FSB
JASPER, ALABAMA
PLE
<TABLE>
<CAPTION>
1992 1993 1994 1995
Num of Quarters Open for Period 4 4 4 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 174,289 176,095 186,324 194,529
% Change in Assets (3.03) 1.04 5.81 4.40
Total Loans 103,685 102,196 113,702 121,364
Mortgage Loans Serv for Others 129,624 112,556 105,059 98,857
Mortgage Loans Serv by Others 1,535 1,147 820 690
Total Savings Deposits 153,782 146,484 149,856 162,931
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 14,388 13,822 13,449 15,127
GAAP Capital 14,388 13,822 13,449 15,127
Tangible Capital 13,649 13,155 12,769 14,373
Core Capital 14,323 13,788 13,362 14,373
Risk-Based Capital 15,001 14,698 14,479 15,574
Equity Capital/Total Assets 8.26 7.85 7.22 7.78
Core Cap/Risk Based Assets 17.78 15.40 14.24 12.95
Core Cap/Adj Tangible Assets 8.25 7.86 7.20 7.42
Tangible Cap/Tangible Assets 7.86 7.50 6.88 7.42
Risk-Based Cap/Risk-Wt Assets 18.62 16.42 15.43 14.03
PROFITABILITY:
Net Income(Loss) 1,579 44 971 1,486
Ret on Avg Assets Bef Ext Item 0.89 0.03 0.54 0.77
Return on Avg GAAP Capital 11.38 0.31 7.10 10.39
Net Interest Income/Avg Assets 3.17 3.10 3.01 3.02
Noninterest Income/Avg Assets 0.97 0.96 0.65 0.58
Noninterest Expense/Avg Assets 2.60 3.78 2.65 2.22
Yield/Cost Spread 3.29 3.15 3.05 3.00
LIQUIDITY:
Int Earn Assets/Int Bear Liab 107.11 106.88 105.26 107.65
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 21,032 23,452 24,116 29,638
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.55 0.28 0.29 0.42
Nonaccrual Loans/Gross Loans 0.35 0.20 0.28 0.32
Nonaccrual Loans/Loan Loss Res 56.05 23.42 29.92 34.49
Reposs Assets/Total Assets 0.02 0.04 - 0.05
Net Chrg-Offs/Avg Adj Lns 0.11 0.06 0.04 0.13
Non 1-4 Con/Conv Lns/Tot Assts 9.50 9.86 9.49 10.32
</TABLE>
Source: Sheshunoff Information Services Inc.
8
<PAGE>
FERGUSON & CO., LLP Exhibit IV
SCHENECTADY FS&LA
SCHENECTADY, NEW YORK
SFED
<TABLE>
<CAPTION>
1992 1993 1994 1995
Num of Quarters Open for Period 4 4 4 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 148,517 146,326 150,896 166,557
% Change in Assets (1.28) (1.48) 3.12 10.38
Total Loans 104,058 92,964 94,299 101,585
Mortgage Loans Serv for Others 6,239 6,236 5,425 4,918
Mortgage Loans Serv by Others 26,954 22,941 19,279 12,206
Total Savings Deposits 137,448 134,425 138,132 139,555
Broker Originated Deposits 1,081 - - -
CAPITAL:
Equity Capital 9,229 9,642 10,046 17,030
GAAP Capital 9,229 9,642 10,046 17,030
Tangible Capital 9,229 9,642 10,046 16,942
Core Capital 9,229 9,642 10,046 16,942
Risk-Based Capital 9,942 10,446 10,907 17,514
Equity Capital/Total Assets 6.21 6.59 6.66 10.22
Core Cap/Risk Based Assets 11.35 12.98 13.25 20.79
Core Cap/Adj Tangible Assets 6.21 6.59 6.66 10.18
Tangible Cap/Tangible Assets 6.21 6.59 6.66 10.18
Risk-Based Cap/Risk-Wt Assets 12.22 14.06 14.38 21.49
PROFITABILITY:
Net Income(Loss) 360 406 511 724
Ret on Avg Assets Bef Ext Item 0.24 0.28 0.34 0.44
Return on Avg GAAP Capital 3.98 4.30 5.19 5.09
Net Interest Income/Avg Assets 2.77 3.00 3.14 3.05
Noninterest Income/Avg Assets 0.36 0.47 0.13 0.21
Noninterest Expense/Avg Assets 2.54 2.81 2.64 2.43
Yield/Cost Spread 2.77 2.97 3.09 2.86
LIQUIDITY:
Int Earn Assets/Int Bear Liab 104.14 106.29 106.33 111.60
Brokered Deposits/Tot Deposits 0.79 - - -
Amt Eligible as Reg Liquidity 20,724 17,362 27,053 45,216
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 1.10 3.16 2.67 1.94
Nonaccrual Loans/Gross Loans 0.31 1.54 1.34 0.79
Nonaccrual Loans/Loan Loss Res 42.06 178.61 147.39 139.09
Reposs Assets/Total Assets 0.48 0.23 0.14 0.12
Net Chrg-Offs/Avg Adj Lns 0.27 0.40 0.07 0.68
Non 1-4 Con/Conv Lns/Tot Assts 6.35 5.69 5.05 3.58
</TABLE>
Source: Sheshunoff Information Services Inc.
9
<PAGE>
FERGUSON & CO., LLP Exhibit IV
FIRST FSB OF NEW CASTLE
NEW CASTLE, PENNSYLVANIA
SHEN
<TABLE>
<CAPTION>
1992 1993 1994 1995
Num of Quarters Open for Period 4 4 4 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 275,796 286,863 302,306 327,253
% Change in Assets 2.55 4.01 5.38 8.25
Total Loans 171,533 201,372 215,811 228,834
Mortgage Loans Serv for Others 1,693 1,247 1,072 699
Mortgage Loans Serv by Others 33,009 37,831 30,260 16,471
Total Savings Deposits 254,112 252,596 250,246 256,268
Broker Originated Deposits - - - -
CAPITAL:
Equity Capital 19,065 31,095 33,256 36,935
GAAP Capital 19,065 31,095 33,256 36,935
Tangible Capital 19,054 31,075 33,542 36,248
Core Capital 19,054 31,075 33,542 36,248
Risk-Based Capital 20,699 33,240 35,709 38,608
Equity Capital/Total Assets 6.91 10.84 11.00 11.29
Core Cap/Risk Based Assets 11.78 17.72 19.40 18.98
Core Cap/Adj Tangible Assets 6.91 10.83 11.08 11.10
Tangible Cap/Tangible Assets 6.91 10.83 11.08 11.10
Risk-Based Cap/Risk-Wt Assets 12.80 18.95 20.65 20.22
PROFITABILITY:
Net Income(Loss) 1,575 2,412 2,099 2,810
Ret on Avg Assets Bef Ext Item 0.58 0.70 0.72 0.89
Return on Avg GAAP Capital 8.62 7.82 6.55 8.07
Net Interest Income/Avg Assets 3.03 3.15 3.24 3.28
Noninterest Income/Avg Assets 0.03 0.10 0.22 0.27
Noninterest Expense/Avg Assets 1.86 2.09 2.13 1.82
Yield/Cost Spread 3.04 3.02 2.96 2.89
LIQUIDITY:
Int Earn Assets/Int Bear Liab 103.77 110.50 111.41 112.45
Brokered Deposits/Tot Deposits - - - -
Amt Eligible as Reg Liquidity 57,412 47,953 40,629 20,461
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 3.01 2.55 2.08 1.80
Nonaccrual Loans/Gross Loans 0.63 1.41 1.00 0.31
Nonaccrual Loans/Loan Loss Res 64.98 130.77 81.37 28.76
Reposs Assets/Total Assets 0.69 0.07 0.10 0.29
Net Chrg-Offs/Avg Adj Lns 0.11 0.19 0.19 0.48
Non 1-4 Con/Conv Lns/Tot Assts 5.47 6.68 6.40 7.13
</TABLE>
Source: Sheshunoff Information Services Inc.
10
<PAGE>
FERGUSON & CO., LLP Exhibit IV
<TABLE>
<CAPTION>
SJS FSB
ST. JOSEPH, MICHIGAN
SJSB
1992 1993 1994 1995
Num of Quarters Open for Period 4 4 4 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 128,860 124,118 123,109 143,248
% Change in Assets (2.75) (3.68) (0.81) 16.36
Total Loans 47,887 51,972 64,911 88,448
Mortgage Loans Serv for Others 42,644 48,684 48,548 51,186
Mortgage Loans Serv by Others 1 1 - 500
Total Savings Deposits 110,012 108,198 109,603 112,079
Broker Originated Deposits 285 190 190 190
CAPITAL:
Equity Capital 8,017 8,864 7,708 13,395
GAAP Capital 8,017 8,864 7,708 13,395
Tangible Capital 8,017 8,864 8,720 13,705
Core Capital 8,017 8,864 8,720 13,705
Risk-Based Capital 8,589 9,412 9,191 14,181
Equity Capital/Total Assets 6.22 7.14 6.26 9.35
Core Cap/Risk Based Assets 16.11 18.41 15.39 19.12
Core Cap/Adj Tangible Assets 6.22 7.15 7.03 9.55
Tangible Cap/Tangible Assets 6.22 7.15 7.03 9.55
Risk-Based Cap/Risk-Wt Assets 17.25 19.55 16.22 19.79
PROFITABILITY:
Net Income(Loss) 756 754 2 901
Ret on Avg Assets Bef Ext Item 0.58 0.60 0.00 0.68
Return on Avg GAAP Capital 9.92 8.93 0.03 6.84
Net Interest Income/Avg Assets 2.04 1.91 2.04 2.78
Noninterest Income/Avg Assets 0.81 1.11 0.39 0.44
Noninterest Expense/Avg Assets 2.06 2.14 2.43 2.22
Yield/Cost Spread 1.95 1.82 1.98 2.59
LIQUIDITY:
Int Earn Assets/Int Bear Liab 105.00 107.40 104.46 108.74
Brokered Deposits/Tot Deposits 0.26 0.18 0.17 0.17
Amt Eligible as Reg Liquidity 10,528 5,934 4,172 3,092
ASSET QUALITY:
Nonperf Lns+REO/Total Lns+REO 0.72 0.40 0.71 0.74
Nonaccrual Loans/Gross Loans 0.29 0.21 0.19 0.17
Nonaccrual Loans/Loan Loss Res 24.14 19.23 22.24 22.48
Reposs Assets/Total Assets 0.03 0.00 0.06 0.12
Net Chrg-Offs/Avg Adj Lns (0.04) (0.07) 0.04 (0.00)
Non 1-4 Con/Conv Lns/Tot Assts 1.24 0.95 0.57 1.24
</TABLE>
Source: Sheshunoff Information Services Inc.
11
<PAGE>
FERGUSON & CO., LLP Exhibit IV
WEST VIEW SAVINGS BANK
PITTSBURGH, PENNSYLVANIA
WVFC
<TABLE>
<CAPTION>
1992 1993 1994 1995
Number of Open Quarters 4 4 4 4
FINANCIAL HIGHLIGHTS
($'s in Thousands)
<S> <C> <C> <C> <C>
BALANCE SHEET:
Total Assets 205,994 217,691 208,983 220,618
% Change in Assets - 5.73 (4.00) 5.57
Securities-Book Value 67,265 84,641 65,469 69,961
Securities-Fair Value 68,039 85,196 64,558 70,715
Total Loans & Leases 127,964 118,140 134,856 142,394
Total Deposits 189,812 194,960 178,561 176,076
Loan/Deposit Ratio 67.42 60.60 75.52 80.87
Provision for Loan Losses 489.00 500.00 211.00 181.00
CAPITAL:
Equity Capital 14,211 19,789 21,800 24,347
Total Qualifying Capital(Est) 15,275 21,325 23,500 25,617
Equity Capital/Average Assets 6.90 9.34 10.45 11.36
Tot Qual Cap/Rk Bsd Asts(Est) 11.24 14.96 17.29 22.26
Tier 1 Cap/Rsk Bsed Asts(Est) 10.46 13.88 16.04 21.00
T1 Cap/Avg Assets(Lev Est) 6.90 8.85 10.65 10.72
Dividends Declared/Net Income - - - -
PROFITABILITY:
Net Income(Loss) 1,876 2,216 2,011 2,373
Return on Average Assets 0.91 1.05 0.96 1.11
Return on Average Equity Cap 13.20 13.04 9.67 10.42
Net Interest Margin 3.42 3.36 3.45 3.91
Net Int Income/Avg Assets 3.39 3.32 3.39 3.87
Noninterest Income/Avg Assets 0.13 0.14 0.13 0.14
Noninterest Exp/Avg Assets 1.71 1.84 1.96 2.08
ASSET QUALITY:
NPL+Frcl RE/Lns+Frcl RE 0.86 1.11 1.30 1.21
NPA's/Equity + LLR 7.19 6.13 7.44 6.58
LLR/Nonperforming Loans 97.79 117.43 100.70 110.92
Foreclosed RE/Total Assets 0.005 - 0.01 0.01
90+ Day Del Loans/Total Loans - 0.002 - -
Loan Loss Reserves/Total Lns 0.83 1.30 1.29 1.33
Net Charge-Offs/Average Loans 0.06 0.02 0.01 0.01
Dom Risk R/E Lns/Tot Dom Lns 19.25 19.74 22.49 20.51
LIQUIDITY:
Brokered Dep/Total Dom Deps - - - -
$100M+ Time Dep/Total Dom Dep 4.14 3.87 5.58 7.51
Int Earn Assets/Int Bear Liab 107.58 112.78 114.26 115.00
Pledged Sec/Total Sec 2.97 2.36 3.05 19.30
Fair Value Sec/Amort Cost Sec 101.15 100.66 98.61 101.46
</TABLE>
Source: Sheshunoff Information Services Inc.
12
<PAGE>
EXHIBIT V
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date
<S> <C> <C> <C> <C> <C> <C> <C>
AADV Advantage Bancorp, Inc. Kenosha WI MW SAIF NASDAQ 03/23/92
ABBK Abington Savings Bank Abington MA NE BIF NASDAQ 06/10/86
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92
AFCB Affiliated Community Bancorp Waltham MA NE SAIF NASDAQ 10/19/95
AFFFZ America First Financial Fund San Francisco CA WE SAIF NASDAQ NA
AHCI Ambanc Holding Co., Inc. Amsterdam NY MA BIF NASDAQ 12/27/95
AHM Ahmanson & Company (H.F.) Irwindale CA WE SAIF NYSE 10/01/72
ALBC Albion Banc Corp. Albion NY MA SAIF NASDAQ 07/26/93
ALBK ALBANK Financial Corp Albany NY MA SAIF NASDAQ 04/01/92
AMFB American Federal Bank Greenville SC SE SAIF NASDAQ 01/19/89
AMFC AMB Financial Corp. Munster IN MW SAIF NASDAQ 04/01/96
ANBK American National Bancorp Baltimore MD MA SAIF NASDAQ 10/31/95
ANDB Andover Bancorp, Inc. Andover MA NE BIF NASDAQ 05/08/86
ASBI Ameriana Bancorp New Castle IN MW SAIF NASDAQ 03/02/87
ASBP ASB Financial Corp. Portsmouth OH MW SAIF NASDAQ 05/11/95
ASFC Astoria Financial Corporation Lake Success NY MA SAIF NASDAQ 11/18/93
ATSB AmTrust Capital Corp. Peru IN MW SAIF NASDAQ 03/28/95
AVND Avondale Financial Corp. Chicago IL MW SAIF NASDAQ 04/07/95
BABC Barrington Bancorp, Inc. Barrington IL MW SAIF NASDAQ 05/12/94
BANC BankAtlantic Bancorp, Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83
BDJI First Federal Bancorporation Bemidji MN MW SAIF NASDAQ 04/04/95
BELL Bell Bancorp Chicago IL MW SAIF NASDAQ 12/23/91
BFD BostonFed Bancorp, Inc. Burlington MA NE SAIF AMSE 10/24/95
BFSB Bedford Bancshares, Inc. Bedford VA SE SAIF NASDAQ 08/22/94
BFSI BFS Bankorp, Inc. New York NY MA SAIF NASDAQ 05/12/88
BKC American Bank of Connecticut Waterbury CT NE BIF AMSE 12/01/81
BKCO Bankers Corp. Perth Amboy NJ MA BIF NASDAQ 03/16/90
BKCT Bancorp Connecticut, Inc. Southington CT NE BIF NASDAQ 07/03/86
BKUNA BankUnited Financial Corp. Coral Gables FL SE SAIF NASDAQ 12/11/85
BRFC Bridgeville Savings Bank Bridgeville PA MA SAIF NASDAQ 10/07/94
BSBC Branford Savings Bank Branford CT NE BIF NASDAQ 11/04/86
BTHL Bethel Bancorp Portland ME NE BIF NASDAQ 08/19/87
BVFS Bay View Capital Corp. San Mateo CA WE SAIF NASDAQ 05/09/86
BWFC Bank West Financial Corp. Grand Rapids MI MW SAIF NASDAQ 03/30/95
BYFC Broadway Financial Corp. Los Angeles CA WE SAIF NASDAQ 01/09/96
CAFI Camco Financial Corporation Cambridge OH MW SAIF NASDAQ NA
<CAPTION>
Current Current Current
Stock Market Price/ Price/
Price Value LTM Core EPS Book Value
Ticker ($) ($M) (x) (%)
<S> <C> <C> <C> <C>
AADV 34.000 117.79 16.11 129.92
ABBK 15.750 29.67 30.29 95.34
ABCW 33.250 164.07 12.79 139.53
AFCB 17.250 87.49 NA 89.80
AFFFZ 27.500 165.29 10.50 109.30
AHCI 9.500 51.51 NA 67.76
AHM 23.750 2,672.17 35.45 116.42
ALBC 17.000 4.43 27.87 72.77
ALBK 26.750 363.94 13.24 113.44
AMFB 15.750 171.73 9.91 160.71
AMFC 10.625 11.94 NA NA
ANBK 10.125 40.30 NA 78.55
ANDB 22.375 94.93 9.64 111.32
ASBI 13.000 43.23 14.13 96.94
ASBP 15.000 25.71 NA 96.15
ASFC 53.250 583.54 13.05 101.80
ATSB 10.000 5.67 111.11 75.08
AVND 13.750 57.52 NA 85.94
BABC 24.500 16.20 43.75 140.08
BANC 15.750 184.95 12.30 138.40
BDJI 13.250 11.43 NA 75.67
BELL 37.250 343.06 31.04 111.59
BFD 12.375 81.55 NA 83.73
BFSB 17.375 20.43 13.90 103.05
BFSI 38.750 63.38 6.91 137.46
BKC 25.625 58.55 22.68 131.34
BKCO 17.000 219.68 10.69 117.48
BKCT 21.250 48.10 11.36 111.31
BKUNA 7.750 42.10 NM 73.11
BRFC 14.000 15.74 22.58 99.50
BSBC 3.000 15.54 14.29 129.87
BTHL 12.500 15.04 16.23 89.61
BVFS 33.000 227.71 30.56 112.02
BWFC 9.500 21.81 NA 79.37
BYFC 10.375 9.26 NA NA
CAFI 18.250 35.98 12.33 129.89
</TABLE>
Source: SNL and F&C calculations.
1
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Stock
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAL Cal Fed Bancorp, Inc. Los Angeles CA WE SAIF NYSE 03/01/83 17.875 881.47
CAPS Capital Savings Bancorp, Inc. Jefferson City MO MW SAIF NASDAQ 12/29/93 19.000 19.74
CARV Carver Federal Savings Bank New York NY MA SAIF NASDAQ 10/25/94 8.750 20.25
CASB Cascade Financial Corp. Everett WA WE SAIF NASDAQ 09/16/92 17.125 27.95
CASH First Midwest Financial, Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 23.250 41.61
CATB Catskill Financial Corp Catskill NY MA BIF NASDAQ 04/18/96 10.625 60.42
CBCI Calumet Bancorp, Inc. Dolton IL MW SAIF NASDAQ 02/20/92 27.750 73.89
CBCO CB Bancorp, Inc. Michigan City IN MW SAIF NASDAQ 12/28/92 16.250 19.31
CBIN Community Bank Shares New Albany IN MW SAIF NASDAQ 04/10/95 14.750 29.26
CBNH Community Bankshares, Inc. Concord NH NE BIF NASDAQ 05/08/86 17.500 42.11
CBSA Coastal Bancorp, Inc. Houston TX SW SAIF NASDAQ NA 18.250 90.48
CBSB Charter Financial, Inc. Sparta IL MW SAIF NASDAQ 12/29/95 11.625 57.83
CCFH CCF Holding Company Jonesboro GA SE SAIF NASDAQ 07/12/95 12.125 13.71
CEBK Central Co-Operative Bank Somerville MA NE BIF NASDAQ 10/24/86 16.250 31.42
CENF CENFED Financial Corp. Pasadena CA WE SAIF NASDAQ 10/25/91 23.000 115.72
CFB Commercial Federal Corporation Omaha NE MW SAIF NYSE 12/31/84 38.375 578.20
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90 21.000 56.90
CFCX Center Financial Corp. Waterbury CT NE BIF NASDAQ 08/13/86 17.250 249.91
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 21.000 26.66
CFHC California Financial Holding Stockton CA WE SAIF NASDAQ 04/01/83 21.875 102.10
CFSB CFSB Bancorp, Inc. Lansing MI MW SAIF NASDAQ 06/22/90 20.250 90.64
CFTP Community Federal Bancorp Tupelo MS SE SAIF NASDAQ 03/26/96 12.750 59.02
CFX CFX Corporation Keene NH NE BIF AMSE 02/12/87 13.625 102.32
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 15.250 10.69
CJFC Central Jersey Financial East Brunswick NJ MA SAIF NASDAQ 09/01/84 27.750 74.04
CKFB CKF Bancorp, Inc. Danville KY MW SAIF NASDAQ 01/04/95 19.625 18.16
CLAS Classic Bancshares, Inc. Ashland KY MW SAIF NASDAQ 12/29/95 11.250 14.88
CMRN Cameron Financial Corp Cameron MO MW SAIF NASDAQ 04/03/95 14.000 39.90
CMSB Commonwealth Savings Bank, M Valley Forge PA MA SAIF NASDAQ 01/24/94 21.250 183.36
CMSV Community Savings, MHC North Palm Beach FL SE SAIF NASDAQ 10/24/94 15.000 72.83
CNIT CENIT Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 34.625 55.62
CNSK Covenant Bank for Savings Haddonfield NJ MA BIF NASDAQ NA 13.250 24.91
COFD Collective Bancorp, Inc. Egg Harbor City NJ MA SAIF NASDAQ 02/07/84 24.125 492.33
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 34.875 1,573.38
CONE Conestoga Bancorp, Inc. Roslyn NY MA SAIF NASDAQ 03/30/94 20.875 98.99
COOP Cooperative Bankshares, Inc. Wilmington NC SE SAIF NASDAQ 08/21/91 18.000 26.85
</TABLE>
<TABLE>
<CAPTION>
Current
Price/ Price/
LTM Core EPS Book Value
(x) (%)
<S> <C>
11.61 136.66
10.44 95.00
20.35 57.87
38.06 137.88
14.62 107.69
NA NA
13.21 86.75
8.38 102.91
NA 115.41
12.24 112.76
9.61 97.28
NA 90.26
NA 78.94
17.66 99.21
16.31 110.31
10.29 144.43
16.28 218.07
15.40 111.58
12.80 123.60
33.14 118.63
14.06 141.61
NA NA
15.48 113.73
12.82 90.08
15.08 134.84
NA 112.59
NA 76.22
NA 79.91
16.87 133.82
18.07 97.66
19.45 118.30
16.56 146.57
9.46 138.09
11.70 172.99
35.99 118.74
32.14 92.31
</TABLE>
Source: SNL and F&C calculations. 2
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit V - Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Price/ Current
Insurance Current Current LTM Price/
Agency Stock Market Core Book
(BIF/ Price Value EPS Value
Ticker Short Name City State Region SAIF) Exchange IPO Date ($) ($M) (x) (%)
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COSB CSB Financial Corporation Lynchburg VA SE SAIF NASDAQ 09/28/93 20.750 54.82 27.30 116.31
CRCL Circle Financial Corp. Sharonville OH MW SAIF NASDAQ 08/06/91 34.625 24.52 27.48 100.95
CRZY Crazy Woman Creek Bancorp Buffalo WY WE SAIF NASDAQ 03/29/96 10.500 11.11 NA NA
CSA Coast Savings Financial Los Angeles CA WE SAIF NYSE 12/23/85 31.125 578.41 17.58 135.98
CSBF CSB Financial Group, Inc. Centralia IL MW SAIF NASDAQ 10/09/95 9.125 9.44 NA 74.19
CTBK Center Banks Incorporated Skaneateles NY MA BIF NASDAQ 06/02/86 14.000 13.05 10.94 85.78
CTZN CitFed Bancorp, Inc. Dayton OH MW SAIF NASDAQ 01/23/92 34.750 196.41 18.89 112.97
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 18.250 28.64 12.50 115.14
CZF CitiSave Financial Corp Baton Rouge LA SW SAIF AMSE 07/14/95 14.625 14.11 NA 91.18
DFIN Damen Financial Corp. Schaumburg IL MW SAIF NASDAQ 10/02/95 11.500 45.63 NA 79.86
DIBK Dime Financial Corp. Wallingford CT NE BIF NASDAQ 07/09/86 13.750 69.06 9.68 133.62
DME Dime Bancorp, Inc. New York NY MA BIF NYSE 08/19/86 12.500 1,235.59 15.06 136.02
DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/85 12.750 87.07 8.50 125.49
DSBC DS Bancor, Inc. Derby CT NE BIF NASDAQ 12/11/85 30.500 92.39 13.44 113.00
DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/71 21.625 367.04 14.42 94.72
EBCI Eagle Bancorp, Inc. Charleston WV SE SAIF NASDAQ 07/18/88 32.000 87.34 21.33 181.92
EBCP Eastern Bancorp Dover NH NE SAIF NASDAQ 11/17/83 24.000 57.55 14.63 90.63
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 14.750 45.98 9.97 123.85
EFBI Enterprise Federal Bancorp Lockland OH MW SAIF NASDAQ 10/17/94 14.250 31.04 20.65 95.90
EGFC Eagle Financial Corp. Bristol CT NE SAIF NASDAQ 02/03/87 23.125 103.87 10.32 108.21
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 22.500 13.50 5.31 102.23
ESBK Elmira Savings Bank (The) Elmira NY MA BIF NASDAQ 03/01/85 17.250 12.30 37.50 86.16
ESX Essex Bancorp, Inc. Virginia Beach VA SE SAIF AMSE NA 3.250 3.41 NM 15.09
ETFS East Texas Financial Services Tyler TX SW SAIF NASDAQ 01/10/95 15.750 17.86 18.53 83.29
FBBC First Bell Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/29/95 13.750 112.29 NA 99.78
FBCI Fidelity Bancorp, Inc. Chicago IL MW SAIF NASDAQ 12/15/93 15.625 48.20 17.76 92.40
FBCV 1ST Bancorp Vincennes IN MW SAIF NASDAQ 04/07/87 29.250 19.48 NM 90.47
FBER 1st Bergen Bancorp Wood-Ridge NJ MA SAIF NASDAQ 04/01/96 9.625 30.55 NA NA
FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/93 18.500 15.12 10.57 87.84
FBSI First Bancshares, Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 16.500 21.48 19.64 91.26
FCB Falmouth Co-Operative Bank Falmouth MA NE BIF AMSE 03/28/96 10.750 15.64 NA NA
FCBF FCB Financial Corp. Neenah WI MW SAIF NASDAQ 09/24/93 17.625 44.28 18.95 94.50
FCIT First Citizens Financial Corp. Gaithersburg MD MA SAIF NASDAQ 12/17/86 19.750 52.32 15.43 134.45
FDEF First Defiance Financial Defiance OH MW SAIF NASDAQ 10/02/95 10.750 118.00 NA 88.40
FED FirstFed Financial Corp. Santa Monica CA WE SAIF NYSE 12/16/83 16.125 171.32 24.43 87.73
FESX First Essex Bancorp, Inc. Andover MA NE BIF NASDAQ 08/04/87 10.875 65.50 10.16 108.86
</TABLE>
Source: SNL and F&C calculations.
3
<PAGE>
PAGE>
FERGUSON & CO., LLP
- -------------------
<TABLE>
<CAPTION>
Exhibit V - Publicly Traded Thrifts
Financial Data as of April 30, 1996
Price/ Current
Deposit Current Current LTM Price/
Insurance Stock Market Core Book
Agency Price Value EPS Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x) (%)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFBA First Colorado Bancorp, Inc. Lakewood CO SW SAIF NASDAQ 01/02/96 12.125 243.68 NA 100.87
FFBI First Financial Bancorp, Inc. Belvidere IL MW SAIF NASDAQ 10/04/93 15.750 7.43 14.06 94.42
FFBS FFBS BanCorp, Inc. Columbus MS SE SAIF NASDAQ 07/01/93 19.500 30.67 18.22 118.69
FFBZ First Federal Bancorp, Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 22.250 17.46 10.21 138.72
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 20.250 128.19 13.06 135.18
FFDF FFD Financial Corp. Dover OH MW SAIF NASDAQ NA 10.500 15.27 NA NA
FFDP FirstFed Bancshares Des Plaines IL MW SAIF NASDAQ 07/01/92 22.500 50.81 26.16 90.29
FFEC First Fed Bncshrs Eau Claire Eau Claire WI MW SAIF NASDAQ 10/12/94 14.000 95.98 17.50 100.65
FFED Fidelity Federal Bancorp Evansville IN MW SAIF NASDAQ 08/31/87 14.000 31.61 10.07 221.87
FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/87 17.500 45.39 9.11 78.48
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94 31.250 89.12 14.27 94.21
FFFD North Central Bancshares, Inc. Fort Dodge IA MW SAIF NASDAQ 03/21/96 10.625 42.62 NA NA
FFFG F.F.O. Financial Group, Inc. St. Cloud FL SE SAIF NASDAQ 10/13/88 2.625 22.13 15.44 117.19
FFFL Fidelity FSB of Florida, MHC West Palm Beach FL SE SAIF NASDAQ 01/07/94 13.500 90.69 18.49 109.67
FFHC First Financial Corp. Stevens Point WI MW SAIF NASDAQ 12/24/80 23.500 702.30 10.49 176.69
FFHH FSF Financial Corp. Hutchinson MN MW SAIF NASDAQ 10/07/94 12.625 43.25 25.25 82.84
FFHP First Harrisburg Bancor Harrisburg PA MA SAIF NASDAQ 10/14/86 NA NA NA NA
FFHS First Franklin Corporation Cincinnati OH MW SAIF NASDAQ 01/26/88 14.375 17.06 13.82 83.04
FFIC Flushing Financial Corp Flushing NY MA BIF NASDAQ 11/21/95 15.750 125.33 NA 98.13
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87 35.750 75.49 16.03 155.10
FFLC FFLC Bancorp, Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 17.750 46.83 15.43 83.49
FFML First Family Financial Corp. Eustis FL SE SAIF NASDAQ 10/22/92 21.750 11.85 15.65 137.92
FFOH Fidelity Financial of Ohio Cincinnati OH MW SAIF NASDAQ 03/04/96 10.000 40.73 NA 80.19
FFPB First Palm Beach Bancorp, Inc. West Palm Beach FL SE SAIF NASDAQ 09/29/93 21.500 111.38 14.14 101.37
FFPC Florida First Bancorp, Inc. Panama City FL SE SAIF NASDAQ 11/06/86 8.500 28.68 12.32 136.22
FFRV Fidelity Financial Bankshares Richmond VA SE SAIF NASDAQ 05/01/86 13.250 30.17 9.81 112.48
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 18.125 10.57 11.54 82.31
FFSW FirstFederal Financial Svcs Wooster OH MW SAIF NASDAQ 03/31/87 24.000 78.61 15.29 163.15
FFSX First Fed SB of Siouxland, MHC Sioux City IA MW SAIF NASDAQ 07/13/92 24.000 40.95 16.00 111.52
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 19.500 14.80 10.96 89.78
FFWD Wood Bancorp, Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 18.500 19.13 12.25 95.26
FFWM First Financial-W. Maryland Cumberland MD MA SAIF NASDAQ 02/11/92 20.000 43.75 33.33 106.95
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93 22.875 113.13 16.34 112.96
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 7.000 14.01 12.73 143.74
FIBC Financial Bancorp, Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 13.250 24.82 19.49 94.44
FIDF Fidelity Federal Bank, FSB Glendale CA WE SAIF NASDAQ NA 9.125 166.46 NM 95.15
</TABLE>
Source: SNL and F&C calculations.
4
<PAGE>
FERGUSON & CO., LLP Exhibit V-Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FISB First Indiana Corporation Indianapolis IN MW SAIF NASDAQ 08/02/83 25.000 206.96
FKFS First Keystone Financial Media PA MA SAIF NASDAQ 01/26/95 17.000 23.12
FKKY Frankfort First Bancorp, Inc. Frankfort KY MW SAIF NASDAQ 07/10/95 15.500 49.27
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 13.500 25.87
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 21.750 86.40
FMBD First Mutual Bancorp, Inc. Decatur IL MW SAIF NASDAQ 07/05/95 12.500 54.40
FMCO FMS Financial Corporation Burlington NJ MA SAIF NASDAQ 12/14/88 14.750 36.38
FMCT Farmers & Mechanics Bank Middletown CT NE BIF NASDAQ 12/10/93 20.000 33.22
FMLY Family Bancorp Haverhill MA NE SAIF NASDAQ 11/07/86 20.750 84.81
FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/85 15.250 37.31
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 15.875 72.34
FNSC Financial Security Corp. Chicago IL MW SAIF NASDAQ 12/29/92 26.250 39.27
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 15.125 37.65
FPRY First Financial Bancorp Tallahassee FL SE SAIF NASDAQ 03/29/88 20.625 17.84
FRC First Republic Bancorp San Francisco CA WE BIF NYSE NA 14.750 108.40
FSBC First Savings Bank, FSB Clovis NM SW SAIF NASDAQ 08/08/86 6.310 4.39
FSBI Fidelity Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 17.500 21.69
FSBS First Ashland Financial Corp Ashland KY MW SAIF NASDAQ 04/07/95 17.750 25.01
FSBX Framingham Savings Bank Framingham MA NE BIF NASDAQ 10/10/86 4.000 55.53
FSFC First Southeast Financial Corp Anderson SC SE SAIF NASDAQ 10/08/93 18.750 76.89
FSFI First State Financial Services West Caldwell NJ MA SAIF NASDAQ 12/18/87 12.000 46.67
FSLA First Savings Bank, MHC Edison NJ MA SAIF NASDAQ 07/10/92 15.000 97.68
FSNJ First Savings Bk of NJ, MHC Bayonne NJ MA SAIF NASDAQ 01/09/95 14.000 42.87
FSPG First Home Savings Bank, FSB Pennsville NJ MA SAIF NASDAQ 04/20/87 18.750 38.06
FSSB First FS&LA of San Bernardino San Bernardino CA WE SAIF NASDAQ 02/02/93 10.000 3.28
FTF Texarkana First Financial Corp Texarkana AR SE SAIF AMSE 07/07/95 15.375 30.50
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89 21.750 136.98
FTSB Fort Thomas Financial Corp Fort Thomas KY MW SAIF NASDAQ 06/28/95 14.440 22.73
FWWB First SB of Washington Bancorp Walla Walla WA WE SAIF NASDAQ 11/01/95 15.125 152.23
GAF GA Financial, Inc. Pittsburgh PA MA SAIF AMSE 03/26/96 11.125 99.01
GBCI Glacier Bancorp, Inc. Kalispell MT WE SAIF NASDAQ 03/30/84 23.750 72.54
GDVS Greater Delaware Valley SB,MHC Broomall PA MA SAIF NASDAQ 03/03/95 10.750 35.18
GDW Golden West Financial Oakland CA WE SAIF NYSE 05/29/59 52.625 3,085.03
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90 21.750 23.73
GFED Guaranty Federal SB, MHC Springfield MO MW SAIF NASDAQ 04/10/95 11.500 35.94
GFSB GFS Bancorp, Inc. Grinnell IA MW SAIF NASDAQ 01/06/94 20.000 10.29
</TABLE>
<TABLE>
<CAPTION>
Current
Price/ Price/
LTM Core EPS Book Value
(x) (%)
<S> <C>
14.45 156.54
NA 96.76
NA 99.30
15.34 141.66
13.26 131.90
NA 75.53
9.05 109.26
NM 111.42
11.93 123.22
10.97 151.44
18.46 99.34
20.83 101.27
12.50 91.50
15.51 118.06
61.46 97.23
13.15 78.09
14.00 95.26
NA 105.22
9.52 155.64
23.44 109.01
12.63 108.50
12.82 108.77
NA 79.10
9.57 126.43
NM 55.43
NA 91.14
15.99 144.71
NA 103.00
NA 99.18
NA 77.58
12.31 189.24
NA 120.79
12.07 132.26
16.23 90.21
NA 136.58
13.07 105.71
</TABLE>
Source: SNL and F&C calculations.
5
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit V - Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Price/ Current
Deposit Current Current LTM Price/
Insurance Stock Market Core Book
Agency Price Value EPS Value
(BIF/ Ex-
Ticker Short Name City State Region SAIF) change IPO Date ($) ($M) (x) (%)
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GLBK Glendale Co-Operative Bank Everett MA NE BIF NASDAQ 01/10/94 17.125 4.23 18.03 72.29
GLN Glendale Federal Bank, FSB Glendale CA WE SAIF NYSE 10/01/83 17.500 771.49 20.11 118.24
GPT GreenPoint Financial Corp. Flushing NY MA BIF NYSE 01/28/94 28.875 1,514.69 12.55 86.58
GROV Grove Bank Chestnut Hill MA NE BIF NASDAQ 08/07/86 25.750 39.61 9.36 108.24
GRTR Greater New York Savings Bank New York NY MA BIF NASDAQ 06/17/87 11.125 147.84 16.36 103.87
GSBC Great Southern Bancorp, Inc. Springfield MO MW SAIF NASDAQ 12/14/89 27.250 120.84 13.16 191.77
GSFC Green Street Financial Corp. Fayetteville NC SE SAIF NASDAQ 04/04/96 12.250 52.65 NA NA
GSLC Guaranty Financial Corp. Charlottesville VA SE SAIF NASDAQ NA 7.750 7.12 13.14 112.65
GTFN Great Financial Corporation Louisville KY MW SAIF NASDAQ 03/31/94 27.375 401.11 21.56 142.65
GTPS Great American Bancorp Champaign IL MW SAIF NASDAQ 06/30/95 13.750 26.29 NA 75.92
GUPB GFSB Bancorp, Inc. Gallup NM SW SAIF NASDAQ 06/30/95 14.375 13.64 NA 84.26
GWBC Gateway Bancorp, Inc. Catlettsburg KY MW SAIF NASDAQ 01/18/95 14.250 17.09 NA 89.06
GWF Great Western Financial Chatsworth CA WE SAIF NYSE NA 23.000 3,155.71 13.22 124.86
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94 15.000 21.64 16.13 82.15
HARB Harbor Federal Savings Bk, MHC Fort Pierce FL SE SAIF NASDAQ 01/06/94 28.750 141.60 13.37 171.33
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 18.500 23.82 10.82 123.25
HARS Harris Savings Bank, MHC Harrisburg PA MA SAIF NASDAQ 01/25/94 16.750 187.77 19.94 123.98
HAVN Haven Bancorp, Inc. Woodhaven NY MA SAIF NASDAQ 09/23/93 24.000 102.90 11.48 109.99
HBBI Home Building Bancorp Washington IN MW SAIF NASDAQ 02/08/95 16.750 5.39 NA 81.19
HBFW Home Bancorp Fort Wayne IN MW SAIF NASDAQ 03/30/95 14.750 45.64 NA 91.11
HBNK Highland Federal Bank FSB Burbank CA WE SAIF NASDAQ NA 16.875 38.74 26.37 111.90
HEMT HF Bancorp, Inc. Hemet CA WE SAIF NASDAQ 06/30/95 9.750 62.54 NA 72.49
HFFB Harrodsburg First Fin Bancorp Harrodsburg KY MW SAIF NASDAQ 10/04/95 13.875 30.28 NA 89.57
HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/92 15.250 46.98 16.22 91.76
HFMD Home Federal Corp. Hagerstown MD MA SAIF NASDAQ 02/10/84 11.250 28.34 11.36 154.11
HFNC HFNC Financial Corp. Charlotte NC SE SAIF NASDAQ 12/29/95 14.000 240.70 NA 98.87
HFSA Hardin Bancorp, Inc. Hardin MO MW SAIF NASDAQ 09/29/95 12.000 12.70 NA 80.00
HFSF Home Federal Financial Corp. San Francisco CA WE SAIF NASDAQ 07/01/86 18.250 66.91 52.14 124.07
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 12.250 10.97 18.28 83.62
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 14.500 18.81 10.07 104.47
HMCI HomeCorp, Inc. Rockford IL MW SAIF NASDAQ 06/22/90 17.750 19.99 23.99 96.47
HMNF HMN Financial, Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 15.250 79.00 14.52 86.94
HNFC Hinsdale Financial Corp. Hinsdale IL MW SAIF NASDAQ 07/07/92 21.000 56.49 15.44 103.96
HOFL Home Financial Corp. Hollywood FL SE SAIF NASDAQ 10/25/94 13.875 343.69 16.32 104.17
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 25.000 55.59 8.83 113.90
HPBC Home Port Bancorp, Inc. Nantucket MA NE BIF NASDAQ 08/25/88 14.000 25.79 8.81 137.25
</TABLE>
Source: SNL and F&C calculations.
6
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date
<S> <C> <C> <C> <C> <C> <C> <C>
HRBF Harbor Federal Bancorp, Inc. Baltimore MD MA SAIF NASDAQ 08/12/94
HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/86
HSBK Hibernia Savings Bank Quincy MA NE BIF NASDAQ 09/08/86
HTHR Hawthorne Financial Corp. El Segundo CA WE SAIF NASDAQ NA
HVFD Haverfield Corporation Cleveland OH MW SAIF NASDAQ 03/19/85
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94
IBSF IBS Financial Corp Cherry Hill NJ MA SAIF NASDAQ 10/13/94
IFSB Independence Federal Savings Washington DC MA SAIF NASDAQ 06/06/85
IFSL Indiana Federal Corporation Valparaiso IN MW SAIF NASDAQ 02/04/87
INBI Industrial Bancorp Bellevue OH MW SAIF NASDAQ 08/01/95
INCB Indiana Community Bank, SB Lebanon IN MW SAIF NASDAQ 12/15/94
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93
IROQ Iroquois Bancorp Auburn NY MA BIF NASDAQ 01/22/86
ISBF ISB Financial Corporation New Iberia LA SW SAIF NASDAQ 04/07/95
ITLA Imperial Thrift and Loan Glendale CA WE BIF NASDAQ 10/24/95
IWBK InterWest Bancorp, Inc. Oak Harbor WA WE SAIF NASDAQ NA
JEBC Jefferson Bancorp, Inc. Gretna LA SW SAIF NASDAQ 08/18/94
JOAC Joachim Bancorp, Inc. De Soto MO MW SAIF NASDAQ 12/28/95
JSBA Jefferson Savings Bancorp Ballwin MO MW SAIF NASDAQ 04/08/93
JSBF JSB Financial, Inc. Lynbrook NY MA BIF NASDAQ 06/27/90
JXSB Jacksonville Savings Bank, MHC Jacksonville IL MW SAIF NASDAQ 04/21/95
JXVL Jacksonville Bancorp, Inc. Jacksonville TX SW SAIF NASDAQ 04/01/96
KFBI Klamath First Bancorp Klamath Falls OR WE SAIF NASDAQ 10/05/95
KNK Kankakee Bancorp, Inc. Kankakee IL MW SAIF AMSE 01/06/93
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93
KSBK KSB Bancorp, Inc. Kingfield ME NE BIF NASDAQ 06/24/93
KYF Kentucky First Bancorp, Inc Cynthiana KY MW SAIF AMSE 08/29/95
LARK Landmark Bancshares, Inc. Dodge City KS MW SAIF NASDAQ 03/28/94
LARL Laurel Capital Group, Inc. Allison Park PA MA SAIF NASDAQ 02/20/87
LBCI Liberty Bancorp, Inc. Chicago IL MW SAIF NASDAQ 12/24/91
LBFI L & B Financial, Inc. Sulphur Springs TX SW BIF NASDAQ 10/11/94
LFBI Little Falls Bancorp, Inc. Little Falls NJ MA SAIF NASDAQ 01/05/96
LFCT Leader Financial Corp. Memphis TN SE SAIF NASDAQ 09/30/93
LFED Leeds Federal Savings Bk, MHC Baltimore MD MA SAIF NASDAQ 05/02/94
LFSB LFS Bancorp Inc. Lexington KY MW SAIF NASDAQ 04/04/94
LIFB Life Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 10/11/94
<CAPTION>
Current Current Current
Stock Market Price/ Price/
Price Value LTM Core EPS Book Value
Ticker ($) ($M) (x) (%)
<S> <C> <C> <C> <C>
HRBF 13.125 24.39 21.52 83.12
HRZB 12.500 82.25 11.47 103.91
HSBK 14.750 22.95 10.24 99.06
HTHR 5.000 13.00 NM 47.48
HVFD 18.000 33.89 18.18 120.81
HZFS 16.125 7.22 16.62 85.77
IBSF 13.750 156.89 17.86 101.63
IFSB 7.750 9.90 14.35 57.97
IFSL 17.625 83.21 11.99 117.66
INBI 15.125 84.01 NA 134.33
INCB 14.750 13.60 18.67 96.22
IPSW 9.000 10.56 7.50 124.65
IROQ 14.500 34.06 9.01 122.67
ISBF 15.500 114.40 NA 95.62
ITLA 14.375 112.42 NA 145.94
IWBK 23.875 153.61 12.63 163.19
JEBC 21.890 48.06 17.24 135.63
JOAC 12.500 9.51 NA 88.78
JSBA 30.000 125.21 18.52 138.95
JSBF 33.875 350.04 16.05 104.62
JXSB 14.000 17.50 NA 104.56
JXVL 10.000 26.57 NA NA
KFBI 13.750 154.75 NA 92.72
KNK 19.125 27.53 18.21 77.37
KSAV 17.250 11.44 12.32 83.94
KSBK 20.750 7.76 7.55 88.87
KYF 12.250 17.01 NA 86.27
LARK 14.625 30.03 18.99 86.90
LARL 16.000 24.12 10.13 119.58
LBCI 23.125 57.51 17.79 90.12
LBFI 15.000 25.01 17.65 97.21
LFBI 11.000 33.46 NA 77.14
LFCT 44.000 436.65 11.43 171.14
LFED 14.375 49.57 17.97 115.09
LFSB 19.000 64.39 36.54 96.94
LIFB 14.250 148.24 15.00 96.68
</TABLE>
Source: SNL and F&C calculations.
7
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Current
Insurance Stock
Agency Price
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NBSI North Bancshares, Inc. Chicago IL MW SAIF NASDAQ 12/21/93 16.250
NEIB Northeast Indiana Bancorp Huntington IN MW SAIF NASDAQ 06/28/95 12.750
NFSL Newnan Savings Bank, FSB Newnan GA SE SAIF NASDAQ 03/01/86 18.000
NHSL NHS Financial, Inc. San Rafael CA WE SAIF NASDAQ NA 9.250
NHTB New Hampshire Thrift Bncshrs New London NH NE SAIF NASDAQ 05/22/86 10.060
NMSB NewMil Bancorp, Inc. New Milford CT NE BIF NASDAQ 02/01/86 6.875
NSBI N.S. Bancorp, Inc. Chicago IL MW SAIF NASDAQ 12/19/90 41.250
NSBK North Side Savings Bank Floral Park NY MA BIF NASDAQ 04/15/86 34.250
NSLB NS&L Bancorp, Inc. Neosho MO MW SAIF NASDAQ 06/08/95 13.250
NSSB Norwich Financial Corp. Norwich CT NE BIF NASDAQ 11/14/86 12.875
NSSY Norwalk Savings Society Norwalk CT NE BIF NASDAQ 06/16/94 21.310
NTMG Nutmeg Federal S&LA Danbury CT NE SAIF NASDAQ NA 7.250
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 10.000
NWSB Northwest Savings Bank, MHC Warren PA MA SAIF NASDAQ 11/07/94 24.250
NYB New York Bancorp Inc. Douglaston NY MA SAIF NYSE 01/28/88 24.500
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 16.250
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93 22.000
OSBF OSB Financial Corp. Oshkosh WI MW SAIF NASDAQ 07/01/92 23.875
PALM Palfed, Inc. Aiken SC SE SAIF NASDAQ 12/15/85 12.810
PBCI Pamrapo Bancorp, Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 19.250
PBCT People's Bank, MHC Bridgeport CT NE BIF NASDAQ 07/06/88 21.250
PBIX Patriot Bank Corp. Pottstown PA MA SAIF NASDAQ 12/04/95 13.000
PBKB People's Bancshares, Inc. South Easton MA NE BIF NASDAQ 10/23/86 9.250
PBNB People's Savings Financial Cp. New Britain CT NE BIF NASDAQ 08/20/86 20.500
PCBC Perry County Financial Corp. Perryville MO MW SAIF NASDAQ 02/13/95 17.000
PCCI Pacific Crest Capital Agoura Hills CA WE BIF NASDAQ NA 7.875
PDB Piedmont Bancorp, Inc. Hillsborough NC SE SAIF AMSE 12/08/95 13.500
PEEK Peekskill Financial Corp. Peekskill NY MA SAIF NASDAQ 12/29/95 11.560
PERM Permanent Bancorp, Inc. Evansville IN MW SAIF NASDAQ 04/04/94 14.750
PETE Primary Bank Peterborough NH NE BIF NASDAQ 10/14/93 13.125
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 19.750
PFFB PFF Bancorp, Inc. Pomona CA WE SAIF NASDAQ 03/29/96 11.500
PFNC Progress Financial Corporation Plymouth Meeting PA MA SAIF NASDAQ 07/18/83 6.940
PFSB PennFed Financial Services,Inc West Orange NJ MA SAIF NASDAQ 07/15/94 15.250
PFSL Pocahontas FS&LA, MHC Pocahontas AR SE SAIF NASDAQ 04/05/94 15.000
PHBK Peoples Heritage Finl Group Portland ME NE BIF NASDAQ 12/04/86 20.875
</TABLE>
<TABLE>
<CAPTION>
Current Currect
Market Price/ Price/
Value LTM Core EPS Book Value
($M) (x) (%)
<C> <C> <C>
19.05 33.85 96.10
26.29 NA 92.12
26.04 9.78 139.97
23.34 46.25 94.58
17.00 13.24 86.95
28.73 5.13 88.48
253.28 15.00 107.67
164.91 11.08 134.84
11.80 NA 81.94
72.15 12.88 94.81
50.39 13.84 115.56
5.13 19.08 105.07
9.81 11.63 77.16
283.43 16.06 148.05
287.25 10.21 180.41
88.64 23.21 112.69
26.94 15.49 105.57
27.24 36.73 85.24
65.35 17.55 126.96
65.32 11.67 110.00
832.27 13.89 150.50
45.47 NA 84.03
31.24 12.67 109.21
39.26 11.39 89.36
14.56 NA 90.28
23.31 8.47 102.67
35.71 NA 96.09
47.39 NA 80.73
31.43 30.10 76.58
25.63 NM 102.86
46.53 11.69 108.58
228.13 NA NA
25.89 10.06 134.76
77.43 11.73 79.97
24.15 12.10 109.97
355.46 9.85 128.54
</TABLE>
Source: SNL and F&C calculations. 9
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit V - Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PHFC Pittsburgh Home Financial Corp Pittsburgh PA MA SAIF NASDAQ 04/01/96 10.690 23.33
PKPS Poughkeepsie Savings Bank, FSB Poughkeepsie NY MA SAIF NASDAQ 11/19/85 5.000 62.67
PLE Pinnacle Bank Jasper AL SE SAIF AMSE 12/17/86 16.375 14.57
PMFI Perpetual Midwest Financial Cedar Rapids IA MW SAIF NASDAQ 03/31/94 17.000 34.29
POBS Portsmouth Bank Shares Portsmouth NH NE BIF NASDAQ 02/09/88 13.500 77.45
PSAB Prime Bancorp, Inc. Philadelphia PA MA SAIF NASDAQ 11/21/88 17.750 66.09
PSBK Progressive Bank, Inc. Fishkill NY MA BIF NASDAQ 08/01/84 27.440 72.18
PSSB Palm Springs Savings Bank Palm Springs CA WE SAIF NASDAQ NA 8.500 9.61
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 16.500 8.79
PULB Pulaski Bank, Savings Bk, MHC St. Louis MO MW SAIF NASDAQ 05/11/94 14.000 29.32
PULS Pulse Bancorp South River NJ MA SAIF NASDAQ 09/18/86 15.000 58.30
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 20.000 30.98
PVSA Parkvale Financial Corporation Monroeville PA MA SAIF NASDAQ 07/16/87 27.500 88.90
PWBC PennFirst Bancorp, Inc. Ellwood City PA MA SAIF NASDAQ 06/13/90 12.750 49.60
QCBC Quaker City Bancorp, Inc. Whittier CA WE SAIF NASDAQ 12/30/93 14.440 56.71
QCFB QCF Bancorp, Inc. Virginia MN MW SAIF NASDAQ 04/03/95 15.125 26.96
QCSB Queens County Bancorp, Inc. Flushing NY MA BIF NASDAQ 11/23/93 43.750 267.31
RARB Raritan Bancorp Inc. Raritan NJ MA BIF NASDAQ 03/01/87 20.750 29.60
RCSB RCSB Financial Inc. Rochester NY MA BIF NASDAQ 04/29/86 23.500 317.58
REDF RedFed Bancorp Inc. Redlands CA WE SAIF NASDAQ 04/08/94 8.375 34.05
RELI Reliance Bancshares, Inc. Milwaukee WI MW SAIF NASDAQ 04/19/96 8.375 21.46
RELY Reliance Bancorp, Inc. Garden City NY MA SAIF NASDAQ 03/31/94 15.125 139.54
RFED Roosevelt Financial Group Chesterfield MO MW SAIF NASDAQ 01/23/87 19.250 810.77
ROSE TR Financial Corp. Garden City NY MA BIF NASDAQ 06/29/93 26.500 237.12
RVSB Riverview Savings Bank, MHC Camas WA WE SAIF NASDAQ 10/26/93 17.000 36.64
SBCN Suburban Bancorporation, Inc. Cincinnati OH MW SAIF NASDAQ 09/30/93 15.500 22.95
SBFL SB of the Finger Lakes, MHC Geneva NY MA SAIF NASDAQ 11/11/94 16.500 29.45
SBOS Boston Bancorp (The) South Boston MA NE BIF NASDAQ 11/09/83 41.750 219.99
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 16.500 12.87
SCSL Suncoast Savings and Loan Hollywood FL SE SAIF NASDAQ 07/30/85 6.310 12.56
SECP Security Capital Corporation Milwaukee WI MW SAIF NASDAQ 01/03/94 58.250 555.45
SFB Standard Federal Bancorp Troy MI MW SAIF NYSE 01/21/87 39.625 1,239.85
SFBM Security Bancorp Billings MT WE SAIF NASDAQ 11/20/86 21.000 30.71
SFED SFS Bancorp, Inc. Schenectady NY MA SAIF NASDAQ 06/30/95 12.750 17.79
SFFC StateFed Financial Corporation Des Moines IA MW SAIF NASDAQ 01/05/94 16.750 13.79
SFIN Statewide Financial Corp. Jersey City NJ MA SAIF NASDAQ 10/02/95 12.375 65.21
<CAPTION>
Current
Price/ Price/
LTM Core EPS Book Value
Ticket (x) (%)
<S> <C> <C>
PHFC NA NA
PKPS 3.16 87.87
PLE 10.70 97.24
PMFI 22.97 95.18
POBS 14.84 114.31
PSAB 12.50 114.96
PSBK 9.87 103.74
PSSB 15.18 83.66
PTRS 10.71 78.57
PULB 25.93 131.21
PULS 11.19 108.38
PVFC 11.24 151.06
PVSA 10.62 131.01
PWBC 13.71 92.59
QCBC 18.05 82.85
QCFB NA 85.69
QCSB 12.39 125.00
RARB 12.89 117.50
RCSB 11.19 115.08
REDF NM 70.79
RELI NA NA
RELY 13.50 90.30
RFED 10.88 177.75
ROSE 12.99 116.53
RVSB 16.19 162.21
SBCN 20.13 88.67
SBFL NA 139.01
SBOS 12.28 103.62
SCCB 18.33 98.80
SCSL NA 93.76
SECP 19.29 104.13
SFB 11.52 132.00
SFBM 15.91 96.77
SFED NA 76.44
SFFC 16.11 92.44
SFIN NA 90.20
</TABLE>
Source: SNL and F&C calculations.
10
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market
Agency Price Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SFSB SuburbFed Financial Corp. Flossmoor IL MW SAIF NASDAQ 03/04/92 16.500 20.80
SFSL Security First Corp. Mayfield Heigh OH MW SAIF NASDAQ 01/22/88 11.750 40.88
SGVB SGV Bancorp, Inc. West Covina CA WE SAIF NASDAQ 06/29/95 9.250 25.23
SHEN First Shenango Bancorp, Inc. New Castle PA MA SAIF NASDAQ 04/06/93 20.500 47.31
SHFC Seven Hills Financial Corp. Cincinnati OH MW SAIF NASDAQ 12/31/93 14.500 7.78
SISB SIS Bank Springfield MA NE BIF NASDAQ 02/08/95 16.875 96.49
SJSB SJS Bancorp St. Joseph MI MW SAIF NASDAQ 02/16/95 19.000 18.09
SMBC Southern Missouri Bancorp, Inc Poplar Bluff MO MW SAIF NASDAQ 04/13/94 14.500 24.99
SMFC Sho-Me Financial Corp. Mt. Vernon MO MW SAIF NASDAQ 07/01/94 15.750 25.94
SOBI Sobieski Bancorp, Inc. South Bend IN MW SAIF NASDAQ 03/31/95 12.750 10.80
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 19.125 71.60
SOSA Somerset Savings Bank Somerville MA NE BIF NASDAQ 07/09/86 1.500 24.98
SPBC St. Paul Bancorp, Inc. Chicago IL MW SAIF NASDAQ 05/18/87 24.375 452.15
SRN Southern Banc Company, Inc Gadsden AL SE SAIF AMSE 10/05/95 12.500 18.18
SSB Scotland Bancorp, Inc Laurinburg NC SE SAIF AMSE 04/01/96 11.750 21.62
SSBK Strongsville Savings Bank Strongsville OH MW SAIF NASDAQ NA 21.750 55.04
SSM Stone Street Bancorp, Inc. Mocksville NC SE SAIF AMSE 04/01/96 17.500 31.94
STFR St. Francis Capital Corp. Milwaukee WI MW SAIF NASDAQ 06/21/93 26.250 156.60
STND Standard Financial, Inc. Chicago IL MW SAIF NASDAQ 08/01/94 14.875 249.38
STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ NA 13.750 74.60
SVRN Sovereign Bancorp, Inc. Wyomissing PA MA SAIF NASDAQ 08/12/86 11.125 532.20
SWBI Southwest Bancshares Hometown IL MW SAIF NASDAQ 06/24/92 27.000 50.52
SWCB Sandwich Co-operative Bank Sandwich MA NE BIF NASDAQ 07/25/86 19.500 36.08
SZB SouthFirst Bancshares, Inc. Sylacauga AL SE SAIF AMSE 02/14/95 12.375 10.68
TBK Tolland Bank Tolland CT NE BIF AMSE 12/19/86 9.940 11.51
TCB TCF Financial Corp. Minneapolis MN MW SAIF NYSE 06/17/86 35.375 1,267.66
THBC Troy Hill Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/27/94 14.000 14.95
THIR Third Financial Corp. Piqua OH MW SAIF NASDAQ 03/25/93 31.500 35.78
THR Three Rivers Financial Corp. Three Rivers MI MW SAIF AMSE 08/24/95 12.750 10.96
THRD TF Financial Corporation Newtown PA MA SAIF NASDAQ 07/13/94 14.125 63.89
TPNZ Tappan Zee Financial, Inc. Tarrytown NY MA SAIF NASDAQ 10/05/95 12.000 19.44
TRIC Tri-County Bancorp, Inc. Torrington WY WE SAIF NASDAQ 09/30/93 17.500 11.21
TSBS Trenton SB, MHC Trenton NJ MA BIF NASDAQ 08/03/95 13.750 122.55
TSH Teche Holding Co. Franklin LA SW SAIF AMSE 04/19/95 13.250 54.24
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 16.000 14.37
UBMT United Savings Bank, F.A. Great Falls MT WE SAIF NASDAQ 09/23/86 18.250 22.33
</TABLE>
<TABLE>
<CAPTION>
Current
Price/ Price/
LTM Core EPS Book Value
Ticker (x) (%)
<S> <C> <C>
SFSB 14.60 80.37
SFSL 8.16 101.03
SGVB NA 77.47
SHEN 14.96 100.49
SHFC 50.00 80.82
SISB 6.70 106.87
SJSB NA 102.70
SMBC 22.66 94.09
SMFC 15.14 82.12
SOBI NA 76.12
SOPN 19.72 106.61
SOSA 15.00 89.82
SPBC 13.54 118.10
SRN NA 80.54
SSB NA NA
SSBK 13.51 131.82
SSM NA NA
STFR 15.00 113.15
STND 15.99 92.68
STSA 15.63 121.68
SVRN 11.59 146.77
SWBI 14.14 120.43
SWCB 11.27 100.36
SZB NA 70.96
TBK NM 86.66
TCB 13.55 234.27
THBC 14.29 83.68
THIR 19.44 126.61
THR NA 84.55
THRD 15.52 79.35
TPNZ NA 86.39
TRIC 17.68 83.10
TSBS NA 124.10
TSH NA 90.82
TWIN 14.55 101.98
UBMT 12.94 90.44
</TABLE>
Source: SNL and F&C calculations.
11
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
Financial Data as of April 30, 1996
Deposit Current Current Current
Insurance Stock Market Price/ Price/
Agency Price Value LTM Core EPS Book Value
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x) (%)
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 7.875 24.14 10.79 116.49
VABF Virginia Beach Fed. Financial Virginia Beach VA SE SAIF NASDAQ 11/01/80 8.250 40.94 NM 99.64
VAFD Valley Federal Savings Bank Sheffield AL SE SAIF NASDAQ 10/15/87 33.000 12.02 26.61 120.04
VFFC Virginia First Financial Petersburg VA SE SAIF NASDAQ 01/01/78 11.625 65.28 9.85 118.50
WAMU Washington Mutual Inc. Seattle WA WE BIF NASDAQ 03/11/83 27.750 1,998.20 10.13 140.29
WAYN Wayne Savings & Loan Co. MHC Wooster OH MW SAIF NASDAQ 06/25/93 22.000 31.31 23.91 138.89
WBCI WFS Bancorp, Inc. Wichita KS MW SAIF NASDAQ 06/03/94 22.625 35.32 19.01 104.31
WBST Webster Financial Corporation Waterbury CT NE SAIF NASDAQ 12/12/86 27.750 224.88 11.28 114.34
WCBI Westco Bancorp Westchester IL MW SAIF NASDAQ 06/26/92 28.875 51.55 13.95 106.55
WCFB Webster City Federal SB, MHC Webster City IA MW SAIF NASDAQ 08/15/94 13.250 27.83 25.98 128.39
WCHI Workingmens Capital Holdings Bloomington IN MW SAIF NASDAQ 06/07/90 19.875 35.73 17.91 137.54
WEFC Wells Financial Corp. Wells MN MW SAIF NASDAQ 04/11/95 10.500 22.97 NA 79.61
WES Westcorp Irvine CA WE SAIF NYSE 05/01/86 19.625 482.89 29.29 158.65
WFCO Winton Financial Corp. Cincinnati OH MW SAIF NASDAQ 08/04/88 13.500 26.81 13.64 129.56
WFSB 1st Washington Bancorp Inc. Herndon VA SE SAIF NASDAQ 05/14/87 7.840 77.48 26.13 164.36
WFSL Washington Federal, Inc. Seattle WA WE SAIF NASDAQ 11/17/82 21.000 894.44 11.80 149.57
WHGB WHG Bancshares Corp. Lutherville MD MA SAIF NASDAQ 04/01/96 11.375 18.43 NA NA
WLDN Walden Bancorp, Inc. Acton MA NE BIF NASDAQ 12/04/85 19.000 100.93 9.60 105.67
WOFC Western Ohio Financial Corp. Springfield OH MW SAIF NASDAQ 07/29/94 23.500 56.69 27.33 93.00
WRNB Warren Bancorp Peabody MA NE BIF NASDAQ 07/09/86 11.375 42.29 8.01 133.20
WSB Washington Savings Bank, FSB Waldorf MD MA SAIF AMSE NA 5.000 21.10 12.50 99.40
WSFS WSFS Financial Corporation Wilmington DE MA BIF NASDAQ 11/26/86 7.625 108.11 6.87 146.35
WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/94 14.500 63.74 16.29 81.60
WVFC WVS Financial Corporation Pittsburgh PA MA SAIF NASDAQ 11/29/93 21.250 36.90 12.72 102.61
YFCB Yonkers Financial Corporation Yonkers NY MA SAIF NASDAQ 04/18/96 10.000 35.71 NA NA
YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/84 17.250 103.79 13.58 115.08
Maximum 58.250 3,155.71 111.11 234.27
Minimum 1.500 3.28 3.16 15.09
Average 17.735 125.34 16.46 108.17
Median 16.000 40.10 14.21 102.91
</TABLE>
Source: SNL and F&C calculations. 12
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before NPAs/
Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Assets
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AADV 150.78 12.10 0.941 973,305 9.95 8.69 2.11 0.89 9.50 N 0.50
ABBK 109.00 6.20 2.540 478,457 6.50 5.73 0.52 0.36 5.25 N 0.32
ABCW 143.01 9.98 1.203 1,707,062 7.16 7.00 2.60 0.89 12.07 N 0.70
AFCB 90.50 9.32 2.783 938,331 10.25 10.18 NA 0.72 NA N 0.67
AFFFZ 112.20 6.84 5.818 2,416,953 6.46 6.30 2.62 0.73 11.46 N 0.58
AHCI 67.76 11.72 0.000 439,365 17.30 17.30 NA 0.22 1.66 N 2.66
AHM 124.22 5.37 3.705 49,781,986 5.93 5.66 0.67 0.88 17.59 N 2.30
ALBC 72.77 7.76 1.805 57,089 10.67 10.67 0.61 0.31 3.03 N 0.60
ALBK 128.54 10.92 1.794 3,333,105 9.63 8.59 2.02 0.98 9.31 N NA
AMFB 174.61 12.76 2.540 1,345,884 8.16 7.56 1.59 1.41 17.81 N 0.71
AMFC NA NA 0.000 65,536 8.60 8.60 NA 0.59 NA N 0.76
ANBK 78.55 9.18 0.000 439,005 11.18 11.18 NA 0.18 NA N 1.90
ANDB 111.32 8.53 2.682 1,110,847 7.67 7.67 2.32 0.87 11.51 N 1.92
ASBI 97.09 11.28 4.317 383,072 11.64 11.62 0.92 0.93 7.20 N 0.47
ASBP 96.15 23.38 2.000 109,960 24.32 24.32 NA 1.04 NA N 0.81
ASFC 125.12 8.70 1.653 6,708,166 8.55 7.07 4.08 0.75 8.47 N NA
ATSB NA 7.76 0.000 73,072 10.34 NA 0.09 0.31 2.75 N 1.31
AVND 85.94 9.42 0.000 610,537 10.96 10.96 NA 0.57 NA N 0.86
BABC 140.08 23.08 1.143 70,204 16.47 16.47 0.56 0.53 3.20 Y 0.54
BANC 153.06 9.53 1.117 1,750,689 6.89 6.27 1.28 1.07 15.11 N 1.28
BDJI 75.67 11.36 0.000 100,591 15.01 15.01 NA 0.71 NA N 0.17
BELL 111.59 17.70 1.208 1,938,454 15.86 15.86 1.20 0.63 4.01 Y NA
BFD 83.73 12.72 1.616 640,883 14.15 14.15 NA 0.19 1.88 N 1.43
BFSB 103.05 17.65 2.072 117,596 16.10 16.10 1.25 1.26 7.56 N 0.00
BFSI 137.46 11.19 0.000 566,452 8.14 8.14 5.61 1.84 24.94 N 1.48
BKC 138.66 12.30 5.307 476,152 9.36 8.91 1.13 0.97 10.71 N 3.33
BKCO 120.14 11.55 3.294 1,901,915 9.83 9.63 1.59 1.11 11.23 N 1.63
BKCT 111.31 12.53 4.047 383,978 11.25 11.25 1.87 1.17 10.67 N 1.86
BKUNA 73.11 2.55 0.000 638,434 7.33 7.33 (0.51) 1.14 23.32 N 0.88
BRFC 99.50 28.02 2.286 56,166 28.15 28.15 0.62 1.31 4.32 N 0.00
BSBC 129.87 11.28 0.000 174,403 8.70 8.70 0.21 0.77 9.18 N 2.31
BTHL 106.93 6.96 2.560 216,199 8.69 7.53 0.77 0.74 9.06 N 2.01
BVFS 114.90 7.82 1.818 2,910,295 6.98 6.82 1.08 (0.02) (0.27) N 1.13
BWFC 79.37 15.75 2.947 138,504 19.84 19.84 NA 0.63 3.21 N 0.04
BYFC NA NA 1.928 117,744 4.74 4.74 NA 0.45 NA N 2.10
CAFI 129.89 10.38 2.411 346,468 7.99 7.99 1.48 1.08 13.96 N 0.31
</TABLE>
Source: SNL and F&C calculations.
13
<PAGE>
FERGUSON & CO., LLP
- ------------------- Exhibit V - Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before NPAs/
Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Assets
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CAL 136.66 6.17 0.000 14,280,100 6.38 6.38 1.54 0.76 13.79 N 1.61
CAPS 95.00 10.26 1.895 192,464 10.80 10.80 1.82 0.99 9.23 N 0.09
CARV 60.85 5.58 0.000 363,225 9.63 9.20 0.43 0.20 2.06 N 0.86
CASB 137.88 8.57 0.000 326,266 6.21 6.21 0.45 0.56 8.90 N 2.03
CASH 115.38 13.26 1.892 314,812 12.31 11.59 1.59 1.29 9.64 N 0.28
CATB NA NA 0.000 230,102 12.46 12.46 NA 0.75 NA N 0.66
CBCI 86.75 14.74 0.000 502,419 16.99 16.99 2.10 1.21 7.24 N 1.23
CBCO 102.91 9.43 0.000 204,825 9.16 9.16 1.94 1.41 13.87 N NA
CBIN 115.41 13.56 2.305 215,726 11.75 11.75 NA 0.91 7.07 N 0.01
CBNH NA 8.15 3.429 516,837 7.23 NA 1.43 0.80 11.04 N 0.44
CBSA 119.83 3.22 2.192 2,806,740 3.31 2.71 1.90 0.37 10.64 N 0.67
CBSB 92.78 19.46 2.065 297,120 21.57 21.11 NA 1.08 NA N 0.34
CCFH 78.94 17.05 3.299 79,578 21.60 21.60 NA 0.86 NA N 0.45
CEBK 113.72 9.87 0.000 318,191 9.95 8.80 0.92 0.60 6.40 N 2.31
CENF 110.58 5.36 1.423 2,151,421 4.86 4.85 1.41 0.36 7.46 N 0.98
CFB 160.77 8.74 1.042 6,617,488 6.05 5.47 3.73 0.84 15.33 N 1.02
CFCP 218.07 13.32 2.381 428,352 6.11 6.11 1.29 0.95 15.65 N 0.19
CFCX 119.46 6.81 1.623 3,669,518 6.10 5.72 1.12 0.69 11.34 N 2.61
CFFC 123.60 16.90 2.476 157,766 13.68 13.68 1.64 1.34 10.20 N 0.27
CFHC 119.67 7.99 2.011 1,277,568 6.75 6.70 0.66 0.29 4.26 N 1.39
CFSB 141.61 11.75 2.173 771,672 8.30 8.30 1.44 0.94 11.56 N 0.09
CFTP NA NA 0.000 162,042 14.46 14.46 NA 1.28 NA N 0.53
CFX 127.81 11.36 5.284 900,549 9.99 8.99 0.88 0.91 8.90 N 1.00
CIBI 90.08 12.47 1.049 85,785 13.84 13.84 1.19 1.01 7.00 N 0.73
CJFC 145.06 15.88 1.730 466,208 11.78 11.04 1.84 1.11 10.78 N 1.91
CKFB 112.59 32.11 2.038 56,549 28.52 28.52 NA 1.32 4.75 N 0.00
CLAS 76.22 21.95 0.000 67,786 28.79 28.79 NA NA NA N 0.51
CMRN 79.91 24.34 2.000 174,142 28.26 28.26 NA 1.57 6.04 N 0.29
CMSB 153.10 12.60 2.353 1,455,700 9.41 8.33 1.26 0.85 8.95 N 0.51
CMSV 97.66 12.41 4.667 587,064 12.71 12.71 0.83 0.82 6.32 N 0.73
CNIT 122.96 8.64 2.310 639,812 7.30 7.05 1.78 0.41 5.56 N 0.43
CNSK 146.57 8.20 0.000 303,656 8.35 8.35 0.80 0.72 11.75 N 1.59
COFD 148.64 9.73 3.316 5,058,597 7.05 6.58 2.55 1.05 15.87 N 0.57
COFI NA 11.94 2.638 13,173,988 6.90 NA 2.98 0.28 4.31 N NA
CONE 118.74 20.02 0.000 494,348 16.18 16.18 0.58 0.68 4.08 Y NA
COOP 105.39 8.61 0.000 311,843 9.33 8.27 0.56 0.32 3.62 N 0.18
</TABLE>
Source: SNL and F&C calculations.
14
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit V - Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before NPAs/
Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Assets
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COSB 121.56 16.67 1.928 328,880 14.33 13.80 0.76 0.68 4.73 Y 0.32
CRCL 117.02 10.99 1.964 222,438 10.89 9.54 1.26 0.53 4.46 Y 0.15
CRZY NA NA 0.000 37,510 15.61 15.61 NA 0.96 NA N 0.33
CSA 138.27 7.02 0.000 8,239,880 5.16 5.08 1.77 0.46 9.62 N 1.62
CSBF 74.19 22.90 0.000 41,231 30.87 30.87 NA NA NA N 0.81
CTBK 85.78 6.07 1.714 214,975 7.08 7.08 1.28 0.56 8.07 N 1.01
CTZN 131.03 7.93 0.806 2,477,970 7.02 6.11 1.84 0.44 6.21 N 0.84
CVAL 115.14 10.59 1.973 270,695 9.20 9.20 1.46 0.89 9.98 N 1.08
CZF 91.29 18.04 2.051 78,218 18.28 18.26 NA 1.12 8.56 N 0.20
DFIN 79.86 19.39 0.000 235,289 24.28 24.28 NA NA NA N 0.08
DIBK 141.17 10.49 2.036 658,373 7.85 7.46 1.42 0.95 12.82 N 1.38
DME NA 6.36 0.000 19,413,115 5.08 NA 0.83 0.33 6.92 N NA
DNFC 127.50 7.07 0.000 1,231,927 5.63 5.55 1.50 1.06 19.79 N 0.59
DSBC 116.99 7.40 0.787 1,247,739 6.55 6.34 2.27 0.66 10.25 N 1.77
DSL 96.41 7.89 2.220 4,652,584 8.33 8.19 1.50 0.61 7.57 N NA
EBCI 181.92 22.12 1.750 394,787 12.16 12.16 1.50 1.24 10.71 Y 0.34
EBCP 96.27 6.98 3.000 824,899 7.70 7.28 1.64 0.61 8.21 N 1.81
EBSI 123.85 8.24 3.525 558,315 6.65 6.65 1.48 0.97 13.77 N 0.49
EFBI 96.09 14.95 0.000 207,680 15.58 15.55 0.69 1.12 5.38 N 0.01
EGPC 120.19 8.02 3.978 1,290,670 7.42 6.73 2.24 0.92 12.33 N 1.27
EQSB 102.23 5.29 0.000 255,127 5.18 5.18 4.24 1.13 21.89 N 0.85
ESBK 90.22 5.47 3.710 224,960 6.34 6.08 0.46 0.15 2.37 N 0.65
ESX 24.31 1.01 0.000 338,724 6.68 4.26 (3.35) (1.33) (36.37) N 3.27
ETFS 83.29 16.35 1.270 114,961 19.63 19.63 0.85 0.89 4.58 N 0.45
FBBC 99.78 22.69 1.455 520,842 22.75 22.75 NA 1.48 8.38 N 0.10
FBCI 92.73 11.13 1.536 433,027 12.05 12.01 0.88 0.77 5.56 N NA
FBCV 90.47 7.13 1.368 273,122 7.88 7.88 (0.57) 2.25 35.92 N 0.38
FBER NA NA 0.000 223,167 6.35 6.35 NA 0.32 NA N 3.78
FBHC 87.84 6.39 1.514 241,761 7.27 7.27 1.75 0.74 10.08 N 1.37
FBSI 91.46 15.70 1.212 140,022 17.21 17.18 0.84 0.80 4.32 N 0.03
FCB NA NA 0.000 73,735 11.44 11.44 NA 0.61 NA N 0.00
FCBF 94.50 18.50 3.404 250,658 19.58 19.58 0.93 0.99 5.01 N 0.09
FCIT 134.45 8.55 0.000 607,429 6.36 6.36 1.28 0.71 11.37 N 3.39
FDEF 88.40 22.45 2.605 525,550 25.40 25.40 NA 1.13 6.14 N 0.26
FED 89.29 4.11 0.000 4,165,825 4.69 4.61 0.66 0.18 3.94 N 2.56
FESX 108.86 8.10 4.414 808,792 7.44 7.44 1.07 0.91 12.83 N 0.76
</TABLE>
Source: SNL and F&C calculations 15
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before NPAs/
Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Assets
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FFBA 102.15 16.33 2.474 1,492,600 16.19 16.02 NA 0.98 NA N NA
FFBI 94.42 9.93 0.000 74,874 10.51 10.51 1.12 0.88 8.05 N 0.44
FFBS 118.69 24.82 2.051 123,553 19.56 19.56 1.07 1.32 6.50 N 0.43
FFBZ 138.89 10.08 1.798 173,191 7.81 7.80 2.18 1.10 14.88 N 0.56
FFCH 135.54 9.03 3.160 1,416,608 6.68 6.66 1.55 0.72 10.75 N 1.47
FFDF NA NA 0.000 59,617 13.26 13.26 NA 0.82 NA N 0.22
FFDP 94.54 8.14 1.778 623,996 9.02 8.65 0.86 0.64 6.65 N 0.09
FFEC 105.03 15.44 2.000 621,590 15.34 14.79 0.80 1.10 6.17 N 0.12
FFED 221.87 11.38 7.143 277,526 5.13 5.13 1.39 1.45 28.84 N 0.09
FFES 78.76 4.86 3.429 933,433 6.20 6.18 1.92 0.60 8.81 N 0.72
FFFC 96.09 17.92 2.560 497,290 17.71 17.42 2.19 1.35 7.44 N 0.52
FFFD NA NA 3.471 179,648 16.47 16.47 NA 1.48 NA N 0.17
FFFG 117.19 7.34 0.000 301,485 6.23 6.23 0.17 0.64 9.17 N 3.62
FFFL 111.11 11.63 4.444 779,620 10.42 10.30 0.73 0.65 6.22 N NA
FFHC 186.21 12.96 2.553 5,419,203 7.34 6.99 2.24 1.29 19.10 N 0.52
FFHH 82.84 13.24 3.960 326,689 15.97 15.97 0.50 0.63 3.37 N 0.09
FFHP NA NA NA 304,667 8.33 8.33 0.48 0.91 11.06 Y 0.89
FFHS 83.04 7.89 1.948 216,124 9.50 9.50 1.04 0.63 6.61 N 0.43
FFIC 98.13 16.95 0.000 739,382 18.72 18.72 NA NA NA N NA
FFKY 166.67 22.10 2.685 341,604 14.25 13.39 2.23 1.70 11.45 N 0.06
FFLC 83.49 14.17 2.254 330,514 16.97 16.97 1.15 0.94 5.43 N 0.08
FFML 137.92 7.73 0.736 153,250 5.61 5.61 1.39 0.82 16.16 N 0.57
FFOH 80.19 16.33 2.000 249,366 20.36 20.36 NA 0.83 NA N 0.40
FFPB 104.02 8.40 1.860 1,378,589 8.29 8.10 1.52 0.64 7.44 N 0.74
FFPC 136.22 9.43 2.824 304,040 6.93 6.93 0.69 0.86 12.90 N 0.82
FFRV 112.57 9.60 1.208 314,413 8.54 8.53 1.35 1.00 11.99 N 0.72
FFSL 82.31 10.41 2.207 101,628 12.64 12.64 1.57 1.13 8.56 N 0.71
FFSW 179.37 7.91 2.000 993,459 7.73 7.28 1.57 1.06 NA N 0.15
FFSX 112.10 9.38 3.000 436,519 8.41 8.38 1.50 0.63 7.79 N NA
FFWC 89.78 10.13 2.462 146,028 11.28 11.28 1.78 0.87 7.67 N 0.08
FFWD 95.26 13.69 1.946 140,383 14.37 14.37 1.51 1.18 8.22 N 0.04
FFWM 106.95 13.40 2.400 326,489 12.53 12.53 0.60 0.43 3.56 N 1.68
FFYF 112.96 20.73 2.623 573,162 18.35 18.35 1.40 1.21 6.50 N 0.88
FGHC 163.55 10.27 0.000 135,582 8.30 7.36 0.55 0.89 11.09 N 1.42
FIBC 94.98 10.68 2.264 243,450 11.31 11.25 0.68 0.61 4.70 N 2.78
FIDF 95.35 5.08 0.000 3,279,564 6.94 6.93 (7.52) (1.97) (43.33) N 3.58
</TABLE>
Source: SNL and F&C calculations.
16
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before NPAs/
Price/ Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Assets
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FISB 158.83 14.01 2.240 1,476,879 8.95 8.84 1.73 1.18 13.88 N 1.70
FKFS 96.76 8.47 0.000 272,821 8.76 8.76 NA 0.42 4.98 N 2.19
FKKY 99.30 35.55 2.323 138,609 35.80 35.80 NA 1.05 NA N 0.00
FLAG 141.66 11.14 2.222 232,105 8.92 8.92 0.88 0.87 9.78 N 1.86
FLFC 158.64 9.32 2.391 927,108 7.88 6.77 1.64 1.02 14.49 N 1.80
FMBD 75.53 19.07 2.240 285,296 25.25 25.25 NA 0.99 4.15 N NA
FMCO 112.34 7.19 1.356 505,700 6.58 6.41 1.63 0.84 13.06 N NA
FMCT 111.42 6.19 0.000 536,955 5.55 5.55 (0.11) 0.07 1.12 N 2.52
FMLY 134.65 9.56 2.313 887,387 7.76 7.14 1.74 0.96 12.56 N 1.19
FMSB 151.44 10.06 1.311 370,986 6.64 6.64 1.39 1.03 15.31 N NA
FNGB 99.34 12.64 3.780 572,193 12.73 12.73 0.86 0.84 6.53 N 0.13
FNSC 101.27 14.17 0.000 277,057 13.99 13.99 1.26 0.75 5.68 Y 2.00
FOBC 96.65 11.09 3.570 339,562 12.12 11.55 1.21 1.00 7.74 N 0.14
FPRY 118.06 7.70 2.909 231,649 6.53 6.53 1.33 0.64 9.93 Y 0.11
FRC NA 5.50 0.000 1,972,611 5.65 NA 0.24 0.14 2.36 N NA
FSBC 78.09 3.75 0.000 116,966 4.80 4.80 0.48 0.34 7.76 N 1.44
FSBI 96.31 7.54 1.829 287,465 7.91 7.83 1.25 0.57 7.31 N 0.52
FSBS 105.22 27.72 0.000 90,216 26.34 26.34 NA 0.86 NA Y 0.58
FSBX 155.64 11.62 2.500 477,665 7.48 7.48 0.42 1.26 17.00 N 1.92
FSFC 109.01 21.39 2.560 359,481 19.62 19.62 0.80 0.90 4.59 N NA
FSFI 114.61 7.81 1.833 597,269 7.20 6.84 0.95 0.74 11.15 N 3.88
FSLA 126.05 10.33 3.333 945,012 9.49 8.30 1.17 0.91 10.02 N 1.02
FSNJ 79.10 6.43 3.571 657,075 8.13 8.13 NA 0.04 0.47 N 0.84
FSPG 130.30 8.40 2.560 453,039 6.64 6.46 1.96 1.11 17.52 N 0.75
FSSB 58.24 3.15 0.000 104,089 5.69 5.43 (0.86) (0.09) (1.55) N 2.50
FTF 91.14 18.85 2.927 161,785 20.69 20.69 NA 1.55 NA N 0.22
FTFC 153.71 9.91 2.943 1,382,069 6.85 6.48 1.36 0.92 13.46 N NA
FTSB 103.00 25.68 1.731 88,470 24.93 24.93 NA 1.32 NA N NA
FWWB 99.18 25.59 1.322 594,917 25.79 25.79 NA NA NA N 0.22
GAF 77.58 17.41 0.000 568,725 22.45 22.45 NA NA NA N 0.19
GBCI 189.55 18.22 2.695 398,220 9.63 9.61 1.93 1.59 16.25 N 0.03
GDVS 120.79 14.63 3.349 240,468 12.11 12.11 NA 0.48 4.10 N 2.63
GDW 140.60 8.81 0.722 35,013,718 6.66 6.29 4.36 0.75 11.76 N 1.37
GFCO 92.63 8.49 3.126 278,609 9.41 9.18 1.34 0.56 5.86 N 0.44
GFED 136.58 19.29 5.565 186,357 14.11 14.11 NA 0.71 NA N 1.20
GFSB 105.71 12.72 1.500 80,913 12.04 12.04 1.53 1.08 8.47 N NA
</TABLE>
Source: SNL and F&C calculations. 17
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit V - Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Current Tangible Return on ROACE
Price/Tang Current Total Equity/ Equity/ Core Avg Assets Before NPAs/
Book Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Assets
Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GLBK 72.29 11.79 0.000 35,903 16.31 16.31 0.95 0.78 4.98 N 0.00
GLN 128.30 5.37 0.000 14,367,978 6.55 6.16 0.87 0.23 2.51 N 2.08
GPT 151.97 10.47 2.771 14,469,048 10.58 6.31 2.30 0.96 6.86 N 2.94
GROV 108.47 6.75 2.796 586,433 6.24 6.23 2.75 0.81 13.29 N 0.75
GRTR 103.87 5.74 0.000 2,575,726 7.69 7.69 0.68 0.75 8.37 N NA
GSBC 195.20 19.13 2.569 658,834 9.97 9.82 2.07 1.64 16.20 N 2.34
GSFC NA NA 0.000 151,028 14.72 14.72 NA 1.21 NA N 0.21
GSLC 112.65 7.38 0.000 96,577 6.55 6.55 0.59 0.57 9.97 N NA
GTFN NA 16.19 1.753 2,477,204 11.35 NA 1.27 1.00 8.18 N 0.44
GTPS 75.92 22.34 8.145 117,706 29.42 29.42 NA 0.77 NA N NA
GUPB 84.26 20.41 2.783 66,821 24.23 24.23 NA 1.40 NA N NA
GWBC 89.06 23.29 2.807 73,409 25.17 25.17 NA 1.14 5.85 N 0.06
GWF 142.59 7.21 4.348 43,762,730 6.45 5.77 1.74 0.65 11.05 N 1.81
HALL 82.15 6.90 0.000 313,681 8.40 8.40 0.93 0.56 5.74 N 0.00
HARB 171.33 15.18 4.174 932,858 8.86 8.86 2.15 1.19 13.70 N 0.54
HARL 123.25 8.69 2.162 273,997 7.05 7.05 1.71 0.82 11.94 N 0.00
HARS 132.73 14.95 3.463 1,255,864 12.06 11.36 0.84 0.81 6.34 N 0.72
HAVN 110.65 6.93 1.667 1,485,076 6.30 6.26 2.09 0.68 10.21 N NA
HBBI 81.19 12.56 1.791 42,954 14.35 14.35 NA 1.05 7.81 N 0.14
HBFW 91.11 15.84 0.000 314,896 17.39 17.39 NA 0.85 5.23 N 0.00
HBNK 111.90 8.77 0.000 441,911 7.84 7.84 0.64 0.22 3.92 N 1.98
HEMT NA 8.29 0.000 754,365 11.44 NA NA 0.19 1.50 N NA
HFFB 89.57 27.85 2.883 108,710 28.66 28.66 NA NA NA N 0.00
HFFC 92.03 8.32 2.164 558,819 9.07 9.04 0.94 0.65 7.27 N 0.67
HFMD 156.47 13.20 1.422 214,615 8.57 8.44 0.99 1.20 15.02 Y 6.03
HFNC 98.87 25.98 0.000 926,259 26.29 26.29 NA NA NA N 1.38
HFSA 80.00 15.36 3.333 82,651 19.20 19.20 NA 0.55 NA N 0.11
HFSF 124.74 9.31 0.000 718,390 7.50 7.47 0.35 0.33 4.53 Y 1.37
HHFC 83.62 15.60 3.265 70,314 18.65 18.65 0.67 0.88 4.75 N 0.18
HIFS 104.47 10.49 2.207 179,389 10.04 10.04 1.44 1.12 10.71 N 0.34
HMCI 96.47 5.85 0.000 341,742 6.07 6.07 0.74 0.37 6.28 N NA
HMNF 86.94 14.58 0.000 542,012 16.77 16.77 1.05 1.10 6.27 N 0.14
HNFC NA 8.28 0.000 682,029 7.97 NA 1.36 0.62 8.23 N 0.13
HOFL 104.17 28.00 5.766 1,227,371 25.52 25.52 0.85 1.70 6.60 N 0.06
HOMF 118.65 9.33 2.000 595,016 8.19 7.89 2.83 1.17 15.06 N 0.50
HPBC 137.25 15.45 4.286 166,866 11.26 11.26 1.59 1.74 15.09 N 0.00
</TABLE>
Source: SNL and F&C calculations.
18
<PAGE>
FERGUSON & CO., LLP
- -------------------
<TABLE>
<CAPTION>
Exhibit V-Publicly Traded Thrifts
Financial Data as of April 30, 1996
Current Current Total Equity/
Price/Tang Price/ Dividend Assets Assets
Book Value Assets Yield ($000) (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
HRBF 83.12 15.81 3.048 154,218 19.03
HRZB 103.91 16.82 2.560 488,968 16.19
HSBK 99.06 6.52 1.898 346,865 6.58
HTHR 47.80 1.72 0.000 753,583 5.17
HVFD 121.54 9.56 3.000 354,505 7.91
HZFS 85.77 10.40 1.984 73,105 12.12
IBSF 101.63 20.73 1.745 756,928 20.40
IFSB 67.45 3.75 2.839 263,740 6.48
IFSL 128.56 11.54 4.085 721,333 9.81
INBI 134.33 25.69 1.983 327,028 19.12
INCB 96.22 15.01 2.373 90,614 15.60
IPSW 124.65 7.88 2.222 134,065 6.32
IROQ 122.67 7.55 2.207 451,060 7.19
ISBF 95.68 18.79 0.000 608,830 19.66
ITLA 145.94 13.12 0.000 655,435 8.99
IWBK 168.02 11.22 2.010 1,368,548 6.88
JEBC 135.63 18.13 1.370 265,039 13.37
JOAC 88.78 26.09 4.000 36,431 29.39
JSBA 168.54 11.24 1.067 1,114,294 7.28
JSBF 104.62 23.03 3.542 1,545,195 22.01
JXSB 104.56 12.61 2.857 138,766 12.06
JXVL NA NA 4.232 198,081 10.47
KFBI 92.72 26.04 1.891 594,269 28.08
KNK 83.37 7.58 2.092 363,182 9.80
KSAV 84.02 12.73 3.478 89,871 15.16
KSBK 96.56 6.09 0.964 127,372 6.85
KYF 86.27 22.93 4.082 74,186 26.58
LARK 86.90 15.12 2.735 198,535 17.40
LARL 119.58 12.52 2.000 192,654 10.47
LBCI 90.37 8.58 2.595 669,949 9.53
LBFI 97.21 17.42 2.667 143,572 17.92
LFBI 83.91 11.72 0.000 285,478 15.19
LFCT 171.14 13.74 1.636 3,177,812 8.03
LFED 115.09 19.02 4.452 260,622 16.53
LFSB 96.94 27.54 0.000 233,737 28.42
LIFB NA 12.31 3.088 1,204,577 12.73
</TABLE>
<TABLE>
<CAPTION>
Tangible Return on ROACE
Equity/ Core Avg Assets Before NPAs/
Tang Assets EPS Before Extra Extra Merger Assets
(%) ($) (%) (%) Target? (%)
Ticker Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C>
HRBF 19.03 0.61 0.82 3.77 N 0.06
HRZB 16.19 1.09 1.53 9.51 N 0.00
HSBK 6.58 1.44 0.86 12.76 N 0.27
HTHR 5.15 (6.49) (1.90) (41.69) N 11.10
HVFD 7.87 0.99 0.58 7.13 N 0.81
HZFS 12.12 0.97 0.71 5.55 N 1.69
IBSF 20.40 0.77 1.11 5.16 N 0.07
IFSB 5.62 0.54 0.54 8.99 N 2.77
IFSL 9.05 1.47 1.00 10.74 N 1.27
INBI 19.12 NA 1.48 NA N 0.13
INCB 15.60 0.79 0.77 4.97 N NA
IPSW 6.32 1.20 1.38 22.40 N 2.23
IROQ 7.19 1.61 0.98 14.79 N 1.21
ISBF 19.65 NA 1.26 7.14 N 0.36
ITLA 8.99 NA NA NA N NA
IWBK 6.69 1.89 1.08 14.78 N 0.59
JEBC 13.37 1.27 1.00 7.77 Y 0.42
JOAC 29.39 NA 0.68 NA N 0.04
JSBA 6.08 1.62 0.62 8.90 N NA
JSBF 22.01 2.11 1.44 6.67 N NA
JXSB 12.06 NA 0.41 3.83 N 0.55
JXVL 10.47 NA 0.74 NA N 1.41
KFBI 28.08 NA NA NA N 0.07
KNK 9.15 1.05 0.50 4.53 N 0.20
KSAV 15.15 1.40 1.14 6.85 N 0.73
KSBK 6.34 2.75 0.79 12.20 N NA
KYF 26.58 NA 0.70 3.97 N NA
LARK 17.40 0.77 0.88 5.04 N 0.06
LARL 10.47 1.58 1.35 13.39 N 0.77
LBCI 9.50 1.30 0.56 5.49 N 0.12
LBFI 17.92 0.85 1.09 5.72 N 0.57
LFBI 14.14 NA NA NA N NA
LFCT 8.03 3.85 1.40 17.38 Y NA
LFED 16.53 0.80 1.03 6.37 N 0.00
LFSB 28.42 0.52 0.77 2.75 Y 0.00
LIFB NA 0.95 0.86 5.94 N NA
</TABLE>
Source: SNL and F&C calculations.
19
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before NPAs/
Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Assets
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LISB 133.48 14.27 1.441 4,834,405 10.69 10.69 1.72 0.95 8.72 N NA
LOAN 154.75 12.30 1.422 126,884 8.64 8.37 0.89 1.53 17.40 N 0.15
LOGN 80.80 22.15 3.200 74,647 27.40 27.40 NA 1.35 6.33 N 0.42
LONF NA NA 0.000 34,152 9.44 9.44 NA 0.44 NA N 0.13
LSBI 84.61 10.36 2.000 158,973 11.37 11.37 NA 0.87 7.30 N 0.00
LSBX 102.00 7.71 0.000 323,523 7.56 7.56 0.79 1.14 14.78 N 1.98
LVSB 123.51 10.69 1.274 440,940 11.11 8.87 1.23 1.55 13.34 N 1.37
MAFB 125.54 6.95 1.219 1,980,184 5.54 5.54 2.87 0.91 15.57 N 0.40
MARN 94.86 22.76 3.534 179,329 24.00 24.00 1.17 1.41 5.79 N 0.93
MASB 102.60 10.42 2.687 858,922 10.16 10.16 3.08 1.05 10.32 N 0.33
MBBC 79.48 12.29 0.000 329,768 14.44 14.27 NA 0.21 1.49 N 0.97
MBLF 117.40 16.87 1.684 197,259 14.37 14.37 0.96 0.72 4.95 N 0.38
MCBN 91.26 8.00 2.581 55,406 8.77 8.77 1.53 0.68 7.73 N 1.19
MCBS 97.78 13.76 2.238 271,700 13.34 13.32 1.23 1.68 11.50 N 0.17
MDBK 117.48 9.47 3.317 980,973 8.89 8.13 2.01 1.03 11.58 N 0.55
MERI 151.24 11.25 1.818 227,121 7.44 7.44 2.71 1.02 14.10 N NA
MFBC 76.33 14.74 0.000 200,895 19.31 19.31 0.64 0.69 3.40 N NA
MFCX 120.88 18.59 0.000 125,312 15.38 15.38 0.33 0.39 2.55 Y 0.00
MFFC 103.96 20.77 3.097 171,708 19.98 19.98 0.70 1.13 4.88 N 0.20
MFLR 100.16 9.66 3.265 110,680 9.87 9.67 0.85 0.85 7.90 N 1.57
MFSB 112.72 12.75 0.000 54,913 11.31 11.31 NA 0.22 2.18 Y NA
MFSL 103.53 8.37 2.107 1,143,338 8.22 8.09 1.97 0.79 9.72 N NA
MGNL 212.98 19.54 1.655 1,290,780 9.77 9.23 2.80 1.80 18.27 N NA
MIDC 100.81 7.82 4.000 364,809 9.36 7.88 0.57 0.31 3.24 N 1.70
MIFC 108.52 9.78 1.185 119,395 9.02 9.01 0.53 0.84 8.90 N NA
MIVI 84.56 16.96 2.783 68,334 20.07 20.07 NA 1.32 7.10 N NA
MLFB 101.79 8.89 2.653 1,757,048 8.23 8.06 1.76 0.69 7.43 N 0.64
MORG 86.34 12.86 2.182 70,748 14.90 14.90 0.72 0.97 6.13 N 0.06
MSBB 64.95 6.18 3.478 454,126 9.69 9.54 1.48 0.55 5.65 N NA
MSBF 91.64 22.83 2.353 52,995 24.91 24.91 NA 2.02 8.79 N 0.23
MSBK 59.85 3.27 0.000 719,490 5.45 5.45 (0.17) 0.01 0.20 N 0.11
MSEA 116.94 6.91 0.000 778,165 6.54 5.95 1.50 0.76 11.97 N NA
MWBI 100.64 6.98 1.944 136,809 6.94 6.94 2.36 0.99 14.16 N 0.27
MWFD 147.67 13.13 1.053 177,164 9.34 8.93 1.64 1.11 11.34 N 0.16
NASB 151.06 10.50 2.080 656,855 7.25 6.97 3.34 1.36 18.76 N 3.43
NBF NA NA NA 396,841 8.91 8.89 0.59 0.40 4.52 Y 0.99
</TABLE>
Source: SNL and F&C calculations.
20
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
Financial Data as of April 30, 1996
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before NPAs/
Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Assets
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NBSI 96.10 16.66 2.462 114,337 17.34 17.34 0.48 0.57 2.98 N 0.00
NEIB 92.12 18.63 2.353 141,098 20.22 20.22 NA 1.09 5.63 N NA
NFSL 140.85 16.21 2.222 160,656 11.58 11.51 1.84 1.89 17.69 N 0.67
NHSL 94.77 7.97 1.730 292,618 8.43 8.41 0.20 0.16 1.93 N 2.05
NHTB 86.95 6.58 4.970 258,216 7.57 7.57 0.76 0.51 6.59 N 1.11
NMSB 88.48 9.86 2.909 291,578 11.13 11.13 1.34 2.07 19.16 N 2.85
NSBI 107.67 21.96 0.776 1,153,392 20.39 20.39 2.75 1.86 9.57 Y 0.28
NSBK NA 10.43 2.920 1,580,435 7.74 NA 3.09 1.15 15.68 N NA
NSLB 81.94 20.07 3.774 56,552 24.49 24.49 NA NA NA N 0.06
NSSB 100.04 10.67 3.107 675,332 11.26 10.73 1.00 0.87 7.59 N 1.72
NSSY 115.56 9.78 0.000 515,267 8.46 8.46 1.54 0.99 11.65 N 3.36
NTMG 105.07 6.05 0.000 83,710 6.30 6.30 0.38 0.61 10.53 N 1.65
NWEQ 77.16 11.82 3.600 82,976 14.06 14.06 0.86 1.15 7.49 N 0.52
NWSB 149.88 16.04 2.474 1,767,455 10.67 10.56 1.51 1.05 9.34 N NA
NYB 180.41 10.43 3.265 2,754,437 5.78 5.78 2.40 1.19 19.84 N 1.49
OFCP 112.77 24.21 1.969 370,305 21.48 21.48 0.70 1.08 4.62 N 0.10
OHSL 105.57 13.11 3.455 205,462 12.42 12.42 1.42 0.95 7.51 N 0.03
OSBF 85.24 10.73 2.346 253,714 12.59 12.59 0.65 0.17 1.34 N 0.11
PALM 133.86 10.12 0.625 646,024 7.97 7.59 0.73 0.64 8.54 N 4.25
PBCI 111.01 17.59 4.675 371,365 15.99 15.86 1.65 1.49 9.71 N 2.45
PBCT 150.50 12.03 3.765 6,916,300 8.17 8.17 1.53 1.15 14.62 N 1.66
PBIX 84.03 16.91 1.846 268,869 20.13 20.13 NA 0.51 5.39 N 0.32
PBKB 118.29 6.63 2.162 324,440 6.06 5.63 0.73 0.81 11.65 N 1.64
PBNB 96.56 9.66 4.293 406,276 10.81 10.09 1.80 0.85 7.81 N 0.44
PCBC 90.28 18.83 1.765 77,318 20.86 20.86 NA 1.00 5.18 N 0.05
PCCI 102.67 8.12 0.000 286,926 7.91 7.91 0.93 1.36 23.43 N 6.49
PDB 96.09 29.15 2.963 122,482 30.35 30.35 NA 1.25 NA N 0.07
PEEK 80.73 25.02 0.000 189,469 30.98 30.98 NA NA NA N 0.07
PERM 77.67 8.53 1.356 377,905 11.14 11.00 0.49 0.33 2.75 N 1.85
PETE 103.27 6.52 0.000 393,159 6.34 6.32 (0.10) (0.04) (0.61) N 1.81
PFDC 108.58 16.57 2.835 280,778 15.26 15.26 1.69 1.45 9.58 N 0.28
PFFB NA NA 0.000 1,899,412 5.76 5.76 NA (0.23) NA N 1.52
PFNC 135.81 7.44 0.000 347,991 5.52 5.48 0.69 0.86 19.35 N 1.33
PFSB 101.26 8.72 0.000 935,037 10.03 8.10 1.30 0.71 6.33 N 0.93
PFSL 109.97 6.54 5.067 369,379 5.95 5.95 1.24 0.56 9.45 N 0.20
PHBK 149.32 10.77 3.257 3,301,647 8.37 7.29 2.12 1.21 14.11 N NA
</TABLE>
Source: SNL and F&C calculations. 21
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity Equity/ Core Avg. Assets Before NPAs/
Price/Tang Price/ Divided Assets Assets Tang Assets EPS Before Extras Extra Merger Assets
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PHFC NA NA 0.000 195,154 5.75 5.75 NA NA NA N NA
PKPS 87.87 7.47 2.000 839,174 8.49 8.49 1.58 1.94 25.03 N 2.18
PLE 100.96 7.50 4.397 194,311 7.71 7.45 1.53 0.77 10.29 N 0.27
PMFI 95.18 9.17 1.765 374,039 9.64 9.64 0.74 0.41 4.09 N 0.52
POBS 114.31 28.97 4.359 267,272 25.36 25.36 0.91 2.31 9.23 N 0.43
PSAB NA 10.85 3.831 608,967 9.44 NA 1.42 1.02 10.89 N NA
PSBK 103.74 9.19 2.915 785,554 8.86 8.86 2.78 0.99 10.53 N 1.06
PSSB 83.66 4.91 1.412 195,666 5.87 5.87 0.56 0.62 11.18 N 3.35
PTRS 78.57 7.70 1.455 114,242 9.79 9.79 1.54 0.74 7.88 N 2.21
PULB 131.21 16.47 5.714 177,984 12.55 12.55 0.54 0.72 6.09 N NA
PULS 108.38 12.88 4.667 452,455 11.89 11.89 1.34 1.17 10.04 N 1.20
PVFC 151.06 9.91 0.000 312,466 6.56 6.56 1.78 1.14 18.41 N 1.23
PVSA 131.64 9.73 1.891 914,016 7.42 7.39 2.59 1.04 15.22 N 0.18
PWBC 101.51 7.71 2.824 659,371 8.33 7.65 0.93 0.61 7.44 N 0.13
QCBC 83.32 8.18 0.000 692,974 9.88 9.83 0.80 0.50 4.90 N 2.31
QCFB 85.69 16.72 0.000 161,231 19.52 19.52 NA 1.45 8.09 N NA
QCSB 125.00 21.22 2.286 1,259,485 16.98 16.98 3.53 1.74 9.84 N NA
RARB 120.57 8.73 2.892 354,810 7.43 7.25 1.61 0.80 10.53 N 0.35
RCSB 119.05 7.72 2.043 4,111,153 9.03 8.81 2.10 1.05 11.55 N 0.72
REDF 70.79 3.91 0.000 871,814 5.51 5.51 (2.72) (0.86) (15.05) N 6.63
RELI NA NA 0.000 32,260 29.81 NA NA 1.23 NA N NA
RELY 133.85 8.00 3.041 1,744,365 8.86 6.16 1.12 0.91 6.81 N NA
RFED NA 8.88 3.221 9,134,660 5.57 NA 1.77 0.66 14.19 N NA
ROSE 116.53 7.90 2.415 3,001,958 6.23 6.23 2.04 0.86 12.63 N NA
RVSB 184.58 17.89 1.176 204,794 11.03 9.83 1.05 1.21 11.26 N 0.00
SBCN 88.67 11.64 3.871 197,137 13.01 13.01 0.77 0.39 2.95 N 0.20
SBFL 139.01 17.36 2.424 169,685 12.49 12.49 NA 0.13 1.06 N NA
SBOS 103.62 12.78 1.820 1,715,070 12.34 12.34 3.40 1.89 21.12 Y 0.65
SCCB 98.80 29.30 3.636 43,939 29.65 29.65 0.90 1.50 4.95 N NA
SCSL 94.18 3.37 0.000 372,140 6.89 6.87 NA 0.34 3.35 N 0.19
SECP 104.13 16.61 1.030 3,344,642 16.88 16.88 3.02 0.89 5.09 N 0.12
SFB 154.66 9.18 1.918 13,505,427 6.95 6.00 3.44 0.93 13.88 N 0.22
SFBM 112.72 8.52 3.000 365,307 8.81 7.66 1.32 0.69 8.17 N 0.11
SFED 76.44 10.74 0.000 165,569 14.06 14.06 NA 0.63 5.06 N 0.63
SFFC 92.44 18.59 2.388 74,182 20.12 20.12 1.04 1.18 5.80 N NA
SFIN 90.46 11.66 0.000 559,049 12.94 12.90 NA NA NA N 1.01
</TABLE>
Source: SNL and F&C calculations.
22
<PAGE>
FERGUSON & CO., LLP EXHIBIT V-Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before NPAs/
Price/ Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Assets
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SFSB 80.88 5.74 1.939 362,272 7.14 7.10 1.13 0.51 6.97 N 0.25
SFSL 103.98 8.92 3.404 458,294 8.83 8.60 1.44 1.33 15.39 N 0.46
SGVB 77.47 7.58 0.000 333,064 9.78 9.78 NA 0.12 1.11 N NA
SHEN 100.49 13.30 1.951 355,710 13.24 13.24 1.37 1.01 7.19 N 0.48
SHFC 80.82 17.13 2.483 45,401 21.20 21.20 0.29 0.36 1.67 N 0.01
SISB 106.87 8.50 0.000 1,135,170 7.42 7.42 2.52 1.27 17.72 N NA
SJSB 102.70 12.58 2.105 143,857 12.25 12.25 NA 0.68 5.67 N NA
SMBC 94.09 15.67 3.448 159,470 16.66 16.66 0.64 0.75 4.20 N NA
SMFC 82.12 9.83 0.000 263,890 11.98 11.98 1.04 0.83 6.26 N 0.00
SOBI 76.12 14.21 0.000 76,005 18.66 18.66 NA 0.50 2.91 N NA
SOPN 106.61 27.94 3.137 256,294 26.21 26.21 0.97 1.48 5.68 N 0.03
SOSA 89.82 4.90 0.000 509,502 5.46 5.46 0.10 0.33 6.38 N 9.74
SPBC 118.50 10.91 1.641 4,142,858 9.24 9.21 1.80 0.89 9.59 N 0.63
SRN 81.43 16.42 2.800 110,757 20.38 20.20 NA NA NA N 8.18
SSB NA NA 0.000 57,718 14.87 14.87 NA 1.25 NA N 0.00
SSBK NA 10.91 2.207 504,631 8.28 NA 1.61 1.00 11.88 N NA
SSM NA NA 0.000 81,560 14.38 14.38 NA 1.40 NA N 0.00
STFR 118.46 13.20 1.524 1,203,689 11.48 11.03 1.75 1.22 11.04 N 0.52
STND 92.74 11.40 2.151 2,186,603 12.30 12.30 0.93 0.88 6.22 N NA
STSA 151.77 4.98 0.000 1,497,617 5.83 5.04 0.88 0.45 7.72 N 0.63
SVRN 226.58 6.33 0.755 8,411,108 5.21 3.83 0.96 0.80 16.63 N NA
SWBI 120.43 14.45 4.000 349,543 12.00 12.00 1.91 1.19 8.83 N 0.25
SWCB 108.09 8.46 5.128 426,515 8.38 7.83 1.73 0.83 10.21 N 1.38
SZB 70.96 12.45 4.040 85,775 17.55 17.55 NA 0.74 4.52 N 0.19
TBK 91.28 5.37 0.000 214,076 6.20 5.91 (0.98) (0.54) (8.37) N 3.96
TCB 244.98 18.01 2.120 7,039,282 7.69 7.37 2.61 1.37 20.18 N 0.92
THBC 83.68 18.58 2.857 80,484 22.20 22.20 0.98 1.38 6.13 N NA
THIR 126.61 22.98 2.159 155,687 18.15 18.15 1.62 1.40 7.85 Y 0.23
THR 85.00 13.39 0.000 81,841 15.84 15.77 NA NA NA N 0.65
THRD 79.35 12.31 2.265 519,196 14.31 14.31 0.91 0.92 5.60 N 0.35
TPNZ 86.39 17.59 1.667 110,542 20.35 20.35 NA 0.77 NA N 1.15
TRIC 83.10 17.05 2.857 65,766 20.52 20.52 0.99 1.01 4.95 N 0.34
TSBS 126.96 23.63 2.545 518,674 19.04 18.69 NA 1.80 NA N NA
TSH 90.82 17.07 3.774 328,426 18.80 18.80 NA 1.18 NA N NA
TWIN 101.98 14.03 4.000 102,423 13.76 13.76 1.10 1.08 7.84 N 0.42
UBMT 90.44 19.51 4.712 114,440 21.57 21.57 1.41 1.62 7.22 N 0.43
</TABLE>
Source: SNL and F&C calculations
<PAGE>
FERGUSON & CO., LLP
- -------------------
<TABLE>
<CAPTION>
Exhibit V-Publicly Traded Thrifts
Financial Data as of April 30, 1996
Tangible Return on ROACE
Current Current Total Equity/ Equity/ Core Avg Assets Before NPAs/
Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger Assets
Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target? (%)
Ticker (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N) Mst RctQ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UPRM 116.49 9.78 2.540 246,918 8.39 8.39 0.73 1.00 12.75 N 0.08
VABF 99.64 6.55 1.939 624,964 6.58 6.58 0.01 0.23 3.99 N 1.10
VAFD 120.04 9.84 1.818 122,083 8.20 8.20 1.24 0.36 4.61 Y 0.61
VFFC 122.89 9.14 0.860 713,931 7.72 7.46 1.18 1.21 16.02 N 2.89
WAMU 157.76 8.94 3.171 22,344,769 7.38 6.74 2.74 1.00 15.17 N 0.51
WAYN 138.89 12.71 4.000 245,892 9.16 9.16 0.92 0.56 6.13 N 1.08
WBCI 104.36 12.81 1.768 275,758 12.28 12.27 1.19 0.45 3.90 Y NA
WBST 150.41 5.90 2.306 3,813,173 5.61 4.43 2.46 0.56 10.43 N 1.44
WCBI 106.55 16.67 2.355 309,265 15.64 15.64 2.07 1.32 8.46 N 0.58
WCFB 128.39 28.61 6.038 97,258 22.29 22.29 0.51 1.11 5.04 N 0.52
WCHI 137.54 16.57 1.811 213,254 12.04 12.04 1.11 0.94 7.85 Y 0.09
WEFC 79.61 11.77 0.000 195,158 14.78 14.78 NA 0.67 6.29 N NA
WES 159.16 15.70 2.038 3,076,518 9.89 9.86 0.67 1.21 13.63 N NA
WFCO 133.14 10.22 3.111 262,329 7.89 7.70 0.99 0.94 12.54 N 0.49
WFSB 164.36 9.67 1.531 801,329 5.89 5.89 0.30 0.67 11.99 Y 1.23
WFSL 157.30 18.15 4.190 4,928,989 12.13 11.61 1.78 1.75 13.78 N NA
WHGB NA NA 0.000 85,027 9.94 9.94 NA 0.77 NA N 0.20
WLDN 123.46 9.90 3.368 1,019,288 9.37 8.13 1.98 0.98 10.83 N 0.73
WOFC 93.00 24.49 4.255 231,505 25.77 25.77 0.86 1.42 4.72 N 0.25
WRNB 133.20 11.92 3.516 354,882 8.95 8.95 1.42 1.65 19.83 N 2.05
WSB 99.40 8.03 2.000 262,632 8.08 8.08 0.40 0.92 12.60 N NA
WSFS NA 8.58 0.000 1,259,332 5.86 NA 1.11 2.20 41.46 N 3.18
WSTR 81.60 10.84 2.345 588,255 13.28 13.28 0.89 0.76 5.68 N 0.02
WVFC 102.61 16.02 1.882 230,276 15.62 15.62 1.67 1.18 7.77 N 0.75
YFCB NA NA 0.000 208,283 7.57 7.57 NA 0.72 NA N 1.80
YFED 115.08 9.84 3.478 1,054,864 8.55 8.55 1.27 0.92 10.78 N 1.36
Maximum 244.98 35.55 8.145 49,781,986 35.80 35.80 5.61 2.31 41.46 11.10
Minimum 24.31 1.01 0.000 32,260 3.31 2.71 (7.52) (1.97) (43.33) 0.00
Average 111.00 12.61 1.948 1,312,027 12.21 12.12 1.26 0.87 8.64 1.01
Media 104.36 11.13 2.000 341,673 9.92 9.67 1.25 0.88 8.05 0.58
</TABLE>
Source: SNL and F&C calculations.
24
<PAGE>
FERGUSON & CO., LLP Exhibit V-Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
AADV 17.35 0.49 0.94 9.70
ABBK 11.58 0.34 0.71 10.72
ABCW 13.19 0.63 0.84 11.62
AFCB 10.52 0.41 0.94 8.70
AFFFZ 8.93 0.77 0.87 13.32
AHCI NA NA 0.37 2.80
AHM 16.05 0.37 0.51 8.86
ALBC 85.00 0.05 0.11 1.06
ALBK 12.62 0.53 0.92 9.56
AMFB 10.64 0.37 1.33 16.19
AMFC NA NA 1.05 NA
ANBK 23.01 0.11 0.40 3.92
ANDB 9.81 0.57 0.92 12.06
ASBI 13.00 0.25 0.97 7.85
ASBP 22.06 0.17 1.01 4.18
ASFC 13.31 1.00 0.88 10.12
ATSB 25.00 0.10 0.46 4.46
AVND 18.09 0.19 0.62 5.66
BABC NM 0.01 0.04 0.24
BANC 17.12 0.23 0.93 9.27
BDJI 15.06 0.22 0.70 4.62
BELL 31.04 0.30 0.64 4.09
BFD NA NA 0.33 3.38
BFSB 12.41 0.35 1.37 8.45
BFSI 5.70 1.70 2.12 26.73
BKC NM 0.02 1.20 13.08
BKCO 10.63 0.40 0.90 9.20
BKCT 12.07 0.44 0.94 8.45
BKUNA 12.92 0.15 0.59 7.06
BRFC 23.33 0.15 1.25 4.24
BSBC 12.50 0.06 0.90 10.26
BTHL 13.59 0.23 0.84 9.87
BVFS 13.52 0.61 0.54 7.77
BWPC 47.50 0.05 0.60 3.06
BYFC NA NA 0.45 NA
CAFI 12.67 0.36 1.10 13.92
</TABLE>
Source: SNL and F&C calculations.
25
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
CAL 9.71 0.46 0.83 14.65
CAPS 10.11 0.47 0.99 9.23
CARV 31.25 0.07 0.15 1.60
CASB 30.58 0.14 0.81 12.79
CASH 13.84 0.42 1.12 8.10
CATB NA NA NA NA
CBCI 12.17 0.57 1.27 7.48
CBCO 10.69 0.38 0.96 10.46
CBIN 16.76 0.22 0.88 7.26
CBNH 12.15 0.36 1.00 13.55
CBSA 8.15 0.56 0.40 12.10
CBSB NA NA 1.08 8.70
CCFH 18.95 0.16 0.92 4.27
CEBK 14.01 0.29 0.75 7.68
CENF 12.78 0.45 0.43 9.12
CFB 8.80 1.09 1.00 16.84
CFCP 16.94 0.31 1.02 16.60
CFCX 23.96 0.18 0.61 9.87
CFFC 12.50 0.42 1.37 10.20
CFHC 13.02 0.42 0.81 11.70
CFSB 14.06 0.36 0.90 10.79
CFTP NA NA 1.27 NA
CFX 14.81 0.23 0.98 9.62
CIBI 13.15 0.29 0.93 6.57
CJFC 15.08 0.46 1.15 9.86
CKFB 24.53 0.20 1.28 4.51
CLAS NA NA 1.00 NA
CMRN 14.58 0.24 1.58 5.59
CMSB 23.10 0.23 0.73 8.04
CMSV 17.86 0.21 0.73 5.71
CNIT 26.23 0.33 0.20 2.80
CNSK 16.56 0.20 0.79 11.29
COFD 9.00 0.67 1.06 15.34
COFI 10.50 0.83 1.19 17.18
CONE 74.55 0.07 0.60 3.73
COOP 40.91 0.11 0.23 2.48
</TABLE>
Source: SNL and F&C calculations.
26
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mst RctQ Mst RctQ Mst Rctq
<S> <C> <C> <C> <C>
COSB 28.82 0.18 0.57 4.04
CRCL 57.71 0.15 0.49 4.43
CRZY NA NA NA NA
CSA 15.56 0.50 0.46 9.02
CSBF NA NA 1.10 5.16
CTBK 9.72 0.36 0.76 10.52
CTZN 12.78 0.68 0.68 9.41
CVAL 12.33 0.37 0.90 9.77
CZF 14.06 0.26 1.27 6.99
DFIN NA NA 0.80 3.30
DIBK 5.29 0.65 1.66 21.55
DME 11.57 0.27 0.54 10.93
DNFC 7.24 0.44 1.16 20.81
DSBC 11.91 0.64 0.70 10.36
DSL 12.57 0.43 0.91 10.95
EBCI 40.00 0.20 0.57 4.82
EBCP 14.63 0.41 0.73 9.56
EBSI 8.38 0.44 1.06 15.74
EFBI 32.39 0.11 1.23 7.06
EGFC 10.91 0.53 0.95 12.56
EQSB 9.22 0.61 0.63 12.02
ESBK NM (0.04) (0.03) (0.39)
ESX NM (0.66) (0.40) (6.01)
ETFS 23.16 0.17 0.74 3.81
FBBC 13.22 0.26 1.66 7.29
FBCI 15.02 0.26 0.77 5.87
FBCV 31.79 0.23 0.53 6.43
FBER NA NA NA NA
FBHC 10.76 0.43 0.80 10.82
FBSI 19.64 0.21 0.76 4.37
FCB NA NA NA NA
FCBF 16.95 0.26 1.11 5.68
FCIT 13.34 0.37 0.78 12.29
FDEF NA NA 1.42 5.63
FED 13.00 0.31 0.32 6.88
FESX 12.36 0.22 0.84 11.46
</TABLE>
27
Source: SNL and F&C calculations.
<PAGE>
FERGUSON & CO., LLP Exibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
FFBA NA NA 1.17 7.21
FFBI 19.69 0.20 0.65 5.93
FFBS 17.41 0.28 1.43 7.13
FFBZ 10.11 0.55 1.10 14.19
FFCH 11.51 0.44 0.72 10.77
FFDF NA NA 0.77 NA
FFDP 43.27 0.13 1.26 13.74
FFEC 16.67 0.21 0.89 5.69
FFED 11.67 0.30 1.30 26.35
FFES 9.94 0.44 0.52 7.77
FFFC 12.81 0.61 1.32 7.43
FFFD NA NA 1.51 NA
FFFG 13.13 0.05 0.69 10.59
FFFL 18.75 0.18 0.62 6.03
FFHC 10.49 0.56 1.28 17.71
FFHH 24.28 0.13 0.57 3.53
FFHP NA 0.08 0.99 12.13
FFHS 14.97 0.24 0.57 5.95
FFIC 21.88 0.18 0.92 4.76
FFKY 15.41 0.58 1.63 11.40
FFLC 14.31 0.31 0.99 5.82
FFML 12.95 0.42 1.29 23.78
FFOH NA NA 0.93 6.10
FFPB 12.22 0.44 0.81 9.46
FFPC 10.12 0.21 0.99 14.47
FFRV 10.69 0.31 0.92 10.76
FFSL 10.79 0.42 0.97 7.69
FFSW 12.50 0.48 1.07 NA
FFSX 14.29 0.42 0.69 8.31
FFWC 9.95 0.49 1.18 10.51
FFWD 12.17 0.38 1.16 8.12
FFWM 12.50 0.40 1.19 9.78
FFYF 15.46 0.37 1.10 6.03
FGHC 14.58 0.12 0.79 9.24
FIBC 12.74 0.26 0.84 7.08
FIDF 10.37 0.22 0.19 0.07
</TABLE>
Source: SNL and F&C calculations.
28
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
FISB 14.88 0.42 1.21 13.72
FKFS 15.18 0.28 0.22 2.49
FKKY 25.83 0.15 1.35 3.74
FLAG 19.85 0.17 0.76 8.11
FLFC 12.36 0.44 1.03 14.03
FMBD 19.53 0.16 1.08 4.22
FMCO 9.46 0.39 0.80 12.08
FMCT 8.20 0.61 0.78 13.48
FMLY 11.04 0.47 0.95 12.22
FMSB 11.21 0.34 1.02 15.45
FNGB 18.04 0.22 0.77 5.99
FNSC 21.17 0.31 0.86 6.50
FOBC 12.60 0.30 0.96 7.69
FPRY 20.63 0.25 0.54 8.28
FRC 12.29 0.30 0.57 10.09
FSBC 157.75 0.01 0.15 3.07
FSBI 12.87 0.34 0.58 7.36
FSBS 31.70 0.14 0.83 3.13
FSBX 9.09 0.11 1.24 16.42
FSFC 22.32 0.21 0.92 4.66
FSFI 15.00 0.20 0.98 14.23
FSLA 12.93 0.29 0.92 9.72
FSNJ 17.50 0.20 (0.70) (7.88)
FSPG 9.01 0.52 1.00 15.20
FSSB NM (0.07) 0.59 10.52
FTF 9.86 0.39 1.80 8.78
FTFC 17.54 0.31 0.89 12.58
FTSB 15.70 0.23 1.49 5.95
FWWB NA NA 1.32 7.05
GAF NA NA 0.80 8.54
GBCI 12.12 0.49 1.52 15.66
GDVS 29.86 0.09 0.51 4.12
GDW 10.70 1.23 0.86 13.09
GFCO 16.99 0.32 0.50 5.23
GFED 57.50 0.05 0.36 2.49
GFSB 10.87 0.46 1.19 9.91
</TABLE>
SOURCE: SNL and F&C calculations
29
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit V - Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
GLBK 30.58 0.14 0.87 5.47
GLN 23.03 0.19 0.56 8.87
GPT 12.03 0.60 0.75 7.10
GROV 8.58 0.75 0.89 14.19
GRTR 16.36 0.17 0.65 6.62
GSBC 12.85 0.53 1.54 15.28
GSFC NA NA NA NA
GSLC 19.38 0.10 0.60 9.09
GTFN 20.13 0.34 1.06 9.02
GTPS 28.65 0.12 0.81 2.75
GUPB 23.96 0.15 0.89 3.37
GWBC 16.19 0.22 1.43 5.44
GWF 12.50 0.46 0.65 10.29
HALL 14.42 0.26 0.55 6.46
HARB 13.07 0.55 1.19 13.47
HARL 10.76 0.43 0.78 11.03
HARS 24.63 0.17 0.60 4.99
HAVN 9.68 0.62 0.77 11.90
HBBI 14.96 0.28 0.78 5.42
HBFW 18.44 0.20 0.80 4.62
HBNK 16.23 0.26 0.54 7.00
HEMT 27.08 0.09 0.43 3.65
HFFB 21.68 0.16 1.15 4.02
HFFC 11.91 0.32 0.85 9.53
HFMD 25.57 0.11 0.58 6.78
HFNC NA NA 0.55 2.59
HFSA 18.75 0.16 0.77 3.98
HFSF 50.69 0.09 0.39 5.27
HHFC 20.42 0.15 0.73 3.97
HIFS 10.98 0.33 0.98 9.52
HMCI 36.98 0.12 0.42 6.92
HMNF 14.66 0.26 1.18 6.88
HNFC 15.44 0.34 0.71 8.94
HOFL 17.34 0.20 1.66 6.49
HOMF 8.56 0.73 1.29 15.93
HPBC 9.21 0.38 1.69 15.19
</TABLE>
Source: SNL and F&C calculations.
30
<PAGE>
FERGUSON & CO., LLP Exhibit V - Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 19996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mct RctQ Mct RctQ Mst RctQ
<S> <C> <C> <C> <C>
HRBF 36.46 0.09 0.44 2.18
HRZB 10.78 0.29 1.57 9.73
HSBK 8.02 0.46 0.67 9.93
HTHR 13.89 0.09 0.28 8.06
HVFD 15.00 0.30 0.79 9.86
HZFS 13.44 0.30 0.82 6.73
IBSF 20.22 0.17 0.98 4.69
IFSB 27.68 0.07 0.43 6.66
IFSL 11.02 0.40 1.03 10.64
INBI 15.13 0.25 1.55 6.53
INCB 24.58 0.15 0.58 3.78
IPSW 6.25 0.36 1.38 22.02
IROQ 9.54 0.38 0.90 13.01
ISBF 15.50 0.25 1.14 5.78
ITLA 9.71 0.37 1.42 15.50
IWBK 11.26 0.53 1.18 16.81
JEBC 17.65 0.31 0.97 7.32
JOAC NA NA 0.55 2.47
JSBA 19.23 0.39 0.71 9.87
JSBF 15.68 0.54 1.54 6.97
JXSB 35.00 0.10 0.44 3.61
JXVL NA NA 0.81 NA
KFBI NA NA 1.40 5.36
KNK 18.39 0.26 0.44 4.39
KSAV 11.98 0.36 1.12 7.02
KSBK 6.57 0.79 0.89 13.10
KYF 18.01 0.17 1.17 4.34
LARK 19.24 0.19 0.86 4.98
LARL 10.00 0.40 1.35 12.97
LBCI 14.82 0.39 0.63 6.60
LBFI 17.05 0.22 1.02 5.63
LFBI NA NA 0.35 3.50
LFCT 10.19 1.08 1.46 18.26
LFED 17.97 0.20 1.04 6.36
LFSB 43.18 0.11 0.69 2.43
LIFB 14.25 0.25 0.90 6.58
</TABLE>
Source: SNL and F&C calculations
31
<PAGE>
FERGUSON & CO., LLP Exhibit V-Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
LISB 17.79 0.39 0.92 8.46
LOAN 17.58 0.16 1.12 12.44
LOGN 15.63 0.20 1.65 6.00
LONF NA NA NA NA
LSBI 14.29 0.28 0.75 6.49
LSBX 6.12 0.24 1.25 16.23
LVSB 18.87 0.26 1.38 12.26
MAFB 8.99 0.73 0.87 15.36
MARN 17.56 0.29 1.37 5.68
MASB 10.92 0.75 1.04 9.74
MBBC 98.96 0.03 0.10 0.66
MBLF 28.27 0.21 0.61 4.22
MCBN 14.68 0.33 0.63 7.17
MCBS 12.08 0.37 1.41 10.45
MDBK 9.49 0.54 1.12 12.41
MERI 12.89 0.64 1.02 13.73
MFBC 18.75 0.19 0.82 4.09
MFCX 103.13 0.04 0.17 1.12
MFPC 25.83 0.15 1.00 4.75
MFLR 13.92 0.22 0.91 8.87
MFSB 105.00 0.05 0.12 1.03
MFSL 14.60 0.52 0.59 7.28
MGNL 12.08 0.75 1.58 15.73
MIDC 11.72 0.32 0.67 7.15
MIFC 12.98 0.13 0.80 8.66
MIVI 15.13 0.19 1.50 7.51
MLFB 13.71 0.44 0.77 8.30
MORG 16.18 0.17 0.88 5.79
MSBB 11.06 0.39 0.53 5.62
MSBF 10.63 0.40 2.08 8.29
MSBK NM (0.11) (0.41) (7.43)
MSEA 6.84 0.53 1.03 15.43
MWBI 10.96 0.61 0.69 9.55
MWFD 14.25 0.50 1.47 15.55
NASB 9.76 0.77 1.08 14.46
NBF NA 0.22 0.53 5.95
</TABLE>
Source: SNL and F&C calculations. 32
<PAGE>
FERGUSON & CO., LLP Exhibit V-Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) ($) ($)
Ticker (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
NBSI 25.39 0.16 0.66 3.64
NEIB 15.94 0.20 1.14 5.33
NFSL 10.71 0.42 1.87 16.31
NHSL 10.05 0.23 0.78 9.27
NHTB 9.31 0.27 0.68 8.84
NMSB 13.22 0.13 0.83 7.20
NSBI 15.17 0.68 1.72 8.48
NSBK 10.57 0.81 1.09 14.18
NSLB 19.49 0.17 1.05 4.38
NSSB 13.41 0.24 0.79 7.01
NSSY NM (0.05) 0.71 8.31
NTMG 25.89 0.07 0.65 11.13
NWEQ 14.71 0.17 0.84 5.67
NWSB 14.79 0.41 1.07 9.75
NYB 9.01 0.68 1.37 22.82
OFCP 23.90 0.17 1.01 4.48
OHSL 15.28 0.36 0.89 7.05
OSBF 18.65 0.32 0.70 5.55
PALM 18.84 0.17 0.68 8.59
PBCI 13.01 0.37 1.35 8.48
PBCT 15.18 0.35 1.21 15.07
FBIX NA NA 0.33 4.32
PBKB 11.01 0.21 0.84 13.06
PBNB 10.68 0.48 0.88 7.92
PCBC 18.48 0.23 0.93 4.50
PCCI 8.20 0.24 1.03 12.83
PDB NA NA 1.33 8.13
PEEK NA NA 0.89 3.84
PERM 26.34 0.14 0.35 3.10
PETE 8.20 0.40 0.81 12.62
PFDC 10.97 0.45 1.53 10.03
PFFB NA NA 0.03 NA
PFNC 173.50 0.01 0.84 15.69
PFSB 10.30 0.37 0.83 8.15
PFSL 12.10 0.31 0.56 9.43
PHBK 9.66 0.54 1.20 14.04
</TABLE>
Source: SNL and F&C calculations.
33
<PAGE>
FERGUSON & CO., LLP Exhibit V-Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
PHFC NA NA 0.54 NA
PKPS 20.83 0.06 0.38 4.42
PLE 9.52 0.43 0.87 11.32
PMFI 20.24 0.21 0.46 4.75
POBS 17.76 0.19 2.67 10.83
PSAB 11.38 0.39 1.05 11.28
PSBK 9.66 0.71 1.02 11.12
PSSB 13.28 0.16 0.61 10.69
PTRS 9.59 0.43 0.83 8.53
PULB 21.88 0.16 0.78 6.37
PULS 11.03 0.34 1.19 9.97
PVFC 11.36 0.44 1.19 18.34
PVSA 9.96 0.69 1.32 18.51
PWBC 12.26 0.26 0.64 7.80
QCBC 15.70 0.23 0.54 5.46
QCFB 11.12 0.34 1.45 7.26
QCSB 12.02 0.91 1.68 9.75
RARB 11.53 0.45 0.87 11.19
RCSB 11.08 0.53 1.00 11.20
REDF NM (1.26) (2.09) (36.86)
RELI NA NA NA NA
RELY 12.60 0.30 0.85 8.02
RFED 10.46 0.46 0.93 18.99
ROSE 11.04 0.60 0.97 14.86
RVSB 15.74 0.27 1.20 11.07
SBCN 32.29 0.12 (0.41) (3.08)
SBFL 103.13 0.04 0.13 1.08
SBOS 10.99 0.95 3.18 28.19
SCCB 27.50 0.15 1.00 3.34
SCSL NM (0.21) 0.72 13.48
SECP 17.34 0.84 0.84 4.92
SFB 11.13 0.89 0.95 13.89
SFBM 17.50 0.30 0.71 8.32
SFED 15.18 0.21 0.70 4.86
SFFC 15.51 0.27 1.18 5.91
SFIN NA NA 0.65 4.97
</TABLE>
Source: SNL and F&C calculations.
34
<PAGE>
FERGUSON & CO., LLP Exhibit V-Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
SFSB 15.28 0.27 0.46 6.36
SPSL 8.16 0.36 1.29 14.87
SGVB NM (0.02) 0.01 0.07
SHEN 14.64 0.35 1.10 7.95
SHFC 40.28 0.09 0.41 1.96
SISB 10.04 0.42 0.87 11.61
SJSB 19.00 0.25 0.69 5.56
SMBC 21.32 0.17 0.78 4.51
SMFC 12.30 0.32 0.86 7.02
SOBI 53.13 0.06 0.27 1.44
SOPN 19.13 0.25 1.52 5.83
SOSA 7.50 0.05 0.60 11.11
SPBC 14.86 0.41 0.85 9.04
SRN NA NA 0.44 2.96
SSB NA NA NA NA
SSBK 13.26 0.41 0.96 11.41
SSM NA NA NA NA
STFR 13.96 0.47 1.36 11.77
STND 15.49 0.24 0.92 7.16
STSA 13.75 0.25 0.50 8.61
SVRN 10.70 0.26 0.78 16.81
SWBI 15.70 0.43 0.99 7.67
SWCB 10.37 0.47 0.99 12.25
SZB 38.67 0.08 0.78 4.45
TBK 8.28 0.30 0.68 11.06
TCB 13.20 0.67 1.48 19.67
THBC 12.96 0.27 1.42 6.41
THIR 21.88 0.36 1.32 7.36
THR 16.78 0.19 0.90 5.68
THRD 13.08 0.27 1.08 7.53
TPNZ NA NA 0.80 5.80
TRIC 18.23 0.24 0.98 4.82
TSBS 18.09 0.19 2.10 11.04
TSH 15.06 0.22 1.12 5.89
TWIN 12.90 0.31 1.18 8.38
UBMT 10.37 0.44 1.96 8.75
</TABLE>
Source: SNL and F&C calculations. 35
<PAGE>
FERGUSON & CO., LLP Exhibit V-Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
Price/ Core Avg Assets Before
Core EPS Before Extra Extra
EPS ($) (%) (%)
Ticker (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C>
UFRM 9.38 0.21 1.08 13.68
VABF 41.25 0.05 0.33 5.33
VAFD 26.61 0.31 0.41 5.11
VFFC 11.18 0.26 1.25 15.98
WAMU 9.91 0.70 1.08 15.70
WAYN 26.19 0.21 0.55 5.99
WBCI 12.86 0.44 0.56 4.74
WBST 11.56 0.60 0.63 10.89
WCBI 14.15 0.51 1.26 8.03
WCFB 23.66 0.14 1.21 5.42
WCHI 19.11 0.26 0.86 7.10
WEFC 14.58 0.18 0.76 5.18
WES 98.13 0.05 1.25 13.09
WFCO 14.06 0.24 0.92 11.95
WFSB 32.67 0.06 0.70 12.10
WFSL 10.29 0.51 1.79 14.56
WHGB NA NA NA NA
WLDN 9.13 0.52 1.12 12.07
WOFC 17.28 0.34 1.83 6.96
WRNB 7.48 0.38 1.85 20.68
WSB 11.36 0.11 0.95 12.31
WSFS 9.08 0.21 0.97 16.29
WSTR 14.50 0.25 0.77 5.73
WVFC 9.49 0.56 2.12 14.03
YFCB NA NA NA NA
YFED 8.80 0.49 1.29 15.29
Maximum 173.50 1.70 3.18 28.19
Minimum 5.29 (1.26) (2.09) (36.86)
Average 18.47 0.32 0.90 8.63
Median 14.06 0.29 0.89 8.13
</TABLE>
Source: SNL and F&C calculations.
36
<PAGE>
EXHIBIT VI
<PAGE>
FERGUSON & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
- -------------------
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Current Current Price/
Insurance Stock Market LTM Core
Agency Price Value EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PKPS Poughkeepsie Savings Bank, FSB Poughkeepsie NY MA SAIF NASDAQ 11/19/85 5.000 62.67 3.16
NMSB NewMil Bancorp, Inc. New Milford CT NE BIF NASDAQ 02/01/86 6.875 28.73 5.13
EQSB Equitable Federal Savings Bank Wheaton MD MA SAIF NASDAQ 09/10/93 22.500 13.50 5.31
SISB SIS Bank Springfield MA NE BIF NASDAQ 02/08/95 16.875 96.49 6.70
WSFS WSFS Financial Corporation Wilmington DE MA BIF NASDAQ 11/26/86 7.625 108.11 6.87
BFSI BFS Bankorp, Inc New York NY MA SAIF NASDAQ 05/12/88 38.750 63.38 6.91
LSBX Lawrence Savings Bank North Andover MA NE BIF NASDAQ 05/02/86 5.875 24.94 7.44
IPSW Ipswich Savings Bank Ipswich MA NE BIF NASDAQ 05/26/93 9.000 10.56 7.50
KSBK KSB Bancorp, Inc. Kingfield ME NE BIF NASDAQ 06/24/93 20.750 7.76 7.55
WRNB Warren Bancorp Peabody MA NE BIF NASDAQ 07/09/86 11.375 42.29 8.01
SFSL Security First Corp. Mayfield Heights OH MW SAIF NASDAQ 01/22/88 11.750 40.88 8.16
CBCO CB Bancorp, Inc. Michigan City IN MW SAIF NASDAQ 12/28/92 16.250 19.31 8.38
PCCI Pacific Crest Capital Agoura Hills CA WE BIF NASDAQ NA 7.875 23.31 8.47
DNFC D & N Financial Corp. Hancock MI MW SAIF NASDAQ 02/13/85 12.750 87.07 8.50
HPBC Home Port Bancorp, Inc. Nantucket MA NE BIF NASDAQ 08/25/88 14.000 25.79 8.81
HOMF Home Federal Bancorp Seymour IN MW SAIF NASDAQ 01/23/88 25.000 55.59 8.83
NASB North American Savings Bank Grandview MO MW SAIF NASDAQ 09/27/85 30.060 68.95 9.00
IROQ Iroquois Bancorp Auburn NY MA BIF NASDAQ 01/22/86 14.500 34.06 9.01
PMCO FMS Financial Corporation Burlington NJ MA SAIF NASDAQ 12/14/88 14.750 36.38 9.05
FFES First Federal of East Hartford East Hartford CT NE SAIF NASDAQ 06/23/87 17.500 45.39 9.11
MAFB MAF Bancorp, Inc. Clarendon Hills IL MW SAIF NASDAQ 01/12/90 26.250 137.67 9.15
GROV Grove Bank Chestnut Hill MA NE BIF NASDAQ 08/07/86 25.750 39.61 9.36
COFD Collective Bancorp, Inc. Egg Harbor City NJ MA SAIF NASDAQ 02/07/84 24.125 492.33 9.46
FSBX Framingham Savings Bank Framingham MA NE BIF NASDAQ 10/10/86 4.000 55.53 9.52
FSPG First Home Savings Bank, FSB Pennsville NJ MA SAIF NASDAQ O4/20/87 18.750 38.06 9.57
WLDN Walden Bancorp, Inc. Acton MA NE BIF NASDAQ 12/04/85 19.000 100.93 9.60
CBSA Coastal Bancorp, Inc. Houston TX SW SAIF NASDAQ NA 18.250 90.48 9.61
ANDB Andover Bancorp, Inc. Andover MA NE BIF NASDAQ 05/08/86 22.375 94.93 9.64
MSEA Metropolitan Bancorp Seattle WA WE SAIF NASDAQ 01/09/90 14.500 53.80 9.67
DIBK Dime Financial Corp. Wallingford CT NE BIF NASDAQ 07/09/86 13.750 69.06 9.68
NFSL Newnan Savings Bank, FSB Newnan GA SE SAIF NASDAQ 03/01/86 18.000 26.04 9.78
FFRV Fidelity Financial Bankshares Richmond VA SE SAIF NASDAQ 05/01/86 13.250 30.17 9.81
PHBK Peoples Heritage Finl Group Portland ME NE BIF NASDAQ 12/04/86 20.875 355.46 9.85
VFFC Virginia First Financial Petersburg VA SE SAIF NASDAQ 01/01/78 11.625 65.28 9.85
PSBK Progressive Bank, Inc. Fishkill NY MA BIF NASDAQ 08/01/84 27.440 72.18 9.87
AMFB American Federal Bank Greenville SC SE SAIF NASDAQ 01/19/89 15.750 171.73 9.91
EBSI Eagle Bancshares Tucker GA SE SAIF NASDAQ 04/01/86 14.750 45.98 9.97
</TABLE>
Source: SNL and F&C calculations.
1
<PAGE>
FERGUSON & CO., LLP
EXHIBIT VI - SELECTED PUBLICLY TRADED THRIFTS
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market Price/
Agency Price Value LTM Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PFNC Progress Financial Corporation Plymouth Meeting PA MA SAIF NASDAQ 07/18/83 6.940 25.89 10.06
FFED Fidelity Federal Bancorp Evansville IN MW SAIF NASDAQ 08/31/87 14.000 31.61 10.07
HIFS Hingham Instit. for Savings Hingham MA NE BIF NASDAQ 12/20/88 14.500 18.81 10.07
LARL Laurel Capital Group, Inc. Allison Park PA MA SAIF NASDAQ 02/20/87 16.000 24.12 10.13
WAMU Washington Mutual Inc. Seattle WA WE BIF NASDAQ 03/11/83 27.750 1,998.20 10.13
FESX First Essex Bancorp, Inc. Andover MA NE BIF NASDAQ 08/04/87 10.875 65.50 10.16
MDBK Medford Savings Bank Medford MA NE BIF NASDAQ 03/18/86 20.500 92.86 10.20
FFBZ First Federal Bancorp, Inc. Zanesville OH MW SAIF NASDAQ 07/13/92 22.250 17.46 10.21
NYB New York Bancorp Inc. Douglaston NY MA SAIF NYSE 01/28/88 24.500 287.25 10.21
HSBK Hibernia Savings Bank Quincy MA NE BIF NASDAQ 09/08/86 14.750 22.95 10.24
CFB Commercial Federal Corporation Omaha NE MW SAIF NYSE 12/31/84 38.375 578.20 10.29
EGFC Eagle Financial Corp. Bristol CT NE SAIF NASDAQ 02/03/87 23.125 103.87 10.32
CAPS Capital Savings Bancorp, Inc. Jefferson City MO MW SAIF NASDAQ 12/29/93 19.000 19.74 10.44
FFHC First Financial Corp. Stevens Point WI MW SAIF NASDAQ 12/24/80 23.500 702.30 10.49
AFFFZ America First Financial Fund San Francisco CA WE SAIF NASDAQ NA 27.500 165.29 10.50
FBHC Fort Bend Holding Corp. Rosenberg TX SW SAIF NASDAQ 06/30/93 18.500 15.12 10.57
PVSA Parkvale Financial Corporation Monroeville PA MA SAIF NASDAQ 07/16/87 27.500 88.90 10.62
MASB MASSBANK Corp. Reading MA NE BIF NASDAQ 05/28/86 32.750 89.52 10.63
BKCO Bankers Corp. Perth Amboy NJ MA BIF NASDAQ 03/16/90 17.000 219.68 10.69
PLE Pinnacle Bank Jasper AL SE SAIF AMSE 12/17/86 16.375 14.57 10.70
PTRS Potters Financial Corp. East Liverpool OH MW SAIF NASDAQ 12/31/93 16.500 8.79 10.71
UFRM United Federal Savings Bank Rocky Mount NC SE SAIF NASDAQ 07/01/80 7.875 24.14 10.79
HARL Harleysville Savings Bank Harleysville PA MA SAIF NASDAQ 08/04/87 18.500 23.82 10.82
RFED Roosevelt Financial Group Chesterfield MO MW SAIF NASDAQ 01/23/87 19.250 810.77 10.88
CTBK Center Banks Incorporated Skaneateles NY MA BIF NASDAQ 06/02/86 14.000 13.05 10.94
FFWC FFW Corp. Wabash IN MW SAIF NASDAQ 04/05/93 19.500 14.80 10.96
FMSB First Mutual Savings Bank Bellevue WA WE BIF NASDAQ 12/17/85 15.250 37.31 10.97
NSBK North Side Savings Bank Floral Park NY MA BIF NASDAQ 04/15/86 34.250 164.91 11.08
PULS Pulse Bancorp South River NJ MA SAIF NASDAQ 09/18/86 15.000 58.30 11.19
RCSB RCSB Financial Inc. Rochester NY MA BIF NASDAQ 04/29/86 23.500 317.58 11.19
PVFC PVF Capital Corp. Bedford Heights OH MW SAIF NASDAQ 12/30/92 20.000 30.98 11.24
SWCB Sandwich Co-operative Bank Sandwich MA NE BIF NASDAQ 07/25/86 19.500 36.08 11.27
WBST Webster Financial Corporation Waterbury CT NE SAIF NASDAQ 12/12/86 27.750 224.88 11.28
MWBI Midwest Bancshares, Inc. Burlington IA MW SAIF NASDAQ 11/12/92 26.750 9.55 11.33
BKCT Bancorp Connecticut, Inc. Southington CT NE BIF NASDAQ 07/03/86 21.250 48.10 11.36
PBNB People's Savings Financial Cp. New Britain CT NE BIF NASDAQ 08/20/86 20.500 39.26 11.39
HRZB Horizon Financial Corp. Bellingham WA WE BIF NASDAQ 08/01/86 12.500 82.25 11.47
</TABLE>
Source: SNL and F&C calculations. 2
<PAGE>
FERGUSON & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Curren Current Price/
Insurance Stock Market LTM
Agency Price Value Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HAVN Haven Bancorp, Inc. Woodhaven NY MA SAIF NASDAQ 09/23/93 24.000 102.90 11.48
SFB Standard Federal Bancorp Troy MI MW SAIF NYSE 01/21/87 39.625 1,239.85 11.52
FFSL First Independence Corp. Independence KS MW SAIF NASDAQ 10/08/93 18.125 10.57 11.54
SVRN Sovereign Bancorp, Inc. Wyomissing PA MA SAIF NASDAQ 08/12/86 11.125 532.20 11.59
CAL Cal Fed Bancorp, Inc. Los Angeles CA WE SAIF NYSE 03/01/83 17.875 881.47 11.61
NWEQ Northwest Equity Corp. Amery WI MW SAIF NASDAQ 10/11/94 10.000 9.81 11.63
MSBB MSB Bancorp, Inc. Goshen NY MA BIF NASDAQ 09/03/92 17.250 48.87 11.66
PBCI Pamrapo Bancorp, Inc. Bayonne NJ MA SAIF NASDAQ 11/14/89 19.250 65.32 11.67
PFDC Peoples Bancorp Auburn IN MW SAIF NASDAQ 07/07/87 19.750 46.53 11.69
COFI Charter One Financial Cleveland OH MW SAIF NASDAQ 01/22/88 34.875 1,573.38 11.70
PFSB PennFed Financial Services, Inc. West Orange NJ MA SAIF NASDAQ 07/15/94 15.250 77.43 11.73
WFSL Washington Federal, Inc. Seattle WA WE SAIF NASDAQ 11/17/82 21.000 894.44 11.80
FMLY Family Bancorp Haverhill MA NE SAIF NASDAQ 11/07/86 20.750 84.81 11.93
IFSL Indiana Federal Corporation Valparaiso IN MW SAIF NASDAQ 02/04/87 17.625 83.21 11.99
GDW Golden West Financial Oakland CA WE SAJF NYSE 05/29/59 52.625 3,085.03 12.07
PFSL Pocahontas FS&LA, MHC Pocahontas AR SE SAIF NASDAQ 04/05/94 15.000 24.15 12.10
MERI Meritrust Federal SB Thibodaux LA SW SAIF NASDAQ NA 33.000 25.55 12.18
CBNH Community Bankshares, Inc. Concord NH NE BIF NASDAQ 05/08/86 17.500 42.11 12.24
FFWD Wood Bancorp, Inc. Bowling Green OH MW SAIF NASDAQ 08/31/93 18.500 19.13 12.25
BANC BankAtlantic Bancorp, Inc. Fort Lauderdale FL SE SAIF NASDAQ 11/29/83 15.750 184.95 12.30
GBCI Glacier Bancorp, Inc. Kalispell MT WE SAIF NASDAQ 03/30/84 23.750 72.54 12.31
FFPC Florida First Bancorp, Inc. Panama City FL SE SAIF NASDAQ 11/06/86 8.500 28.68 12.32
KSAV KS Bancorp, Inc. Kenly NC SE SAIF NASDAQ 12/30/93 17.250 11.44 12.32
CAFI Camco Financial Corporation Cambridge OH MW SAIF NASDAQ NA 18.250 35.98 12.33
QCSB Queens County Bancorp, Inc. Flushing NY MA BIF NASDAQ 11/23/93 43.750 267.31 12.39
CVAL Chester Valley Bancorp Inc. Downingtown PA MA SAIF NASDAQ 03/27/87 18.250 28.64 12.50
FOBC Fed One Bancorp Wheeling WV SE SAIF NASDAQ 01/19/95 15.125 37.65 12.50
PSAB Prime Bancorp, Inc. Philadelphia PA MA SAIF NASDAQ 11/21/88 17.750 66.09 12.50
WSB Washington Savings Bank, FSB Waldorf MD MA SAIF AMSE NA 5.000 21.10 12.50
GPT GreenPoint Financial Corp. Flushing NY MA BIF NYSE 01/28/94 28.875 1,514.69 12.55
FSFI First State Financial Services West Caldwell NJ MA SAIF NASDAQ 12/18/87 12.000 46.67 12.63
IWBK InterWest Bancorp, Inc. Oak Harbor WA WE SAIF NASDAQ NA 23.875 153.61 12.63
LOAN Horizon Bancorp Austin TX SW SAIF NASDAQ NA 11.250 15.60 12.64
MCBN Mid-Coast Bancorp, Inc. Waldoboro ME NE SAIF NASDAQ 11/02/89 19.375 4.43 12.66
PBKB People's Bancshares, Inc. South Easton MA NE BIF NASDAQ 10/23/86 9.250 31.24 12.67
WVFC WVS Financial Corporation Pittsburgh PA MA SAIF NASDAQ 11/29/93 21.250 36.90 12.72
FGHC First Georgia Holding, Inc. Brunswick GA SE SAIF NASDAQ 02/11/87 7.000 14.01 12.73
</TABLE>
Source: SNL and F&C calculations.
3
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit VI - Selected Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Current Current Price/
Insurance Stock Market LTM Core
Agency Price Value EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MIFC Mid-Iowa Financial Corp. Newton IA MW SAIF NASDAQ 10/14/92 6.750 11.68 12.74
ABCW Anchor BanCorp Wisconsin Madison WI MW SAIF NASDAQ 07/16/92 33.250 164.07 12.79
CFFC Community Financial Corp. Staunton VA SE SAIF NASDAQ 03/30/88 21.000 26.66 12.80
CIBI Community Investors Bancorp Bucyrus OH MW SAIF NASDAQ 02/07/95 15.250 10.69 12.82
FSLA First Savings Bank, MHC Edison NJ MA SAIF NASDAQ 07/10/92 15.000 97.68 12.82
NSSB Norwich Financial Corp. Norwich CT NE BIF NASDAQ 11/14/86 12.875 72.15 12.88
RARB Raritan Bancorp Inc. Raritan NJ MA BIF NASDAQ 03/01/87 20.750 29.60 12.89
UBMT United Savings Bank, F.A. Great Falls MT WE SAIF NASDAQ 09/23/86 18.250 22.33 12.94
MGNL Magna Bancorp, Inc. Haltiesburg MS SE SAIF NASDAQ 03/13/91 36.250 252.27 12.95
ROSE TR Financial Corp. Garden City NY MA BIF NASDAQ 06/29/93 26.500 237.12 12.99
ASFC Astoria Financial Corporation Lake Success NY MA SAIF NASDAQ 11/18/93 53.250 583.54 13.05
FFCH First Financial Holdings Inc. Charleston SC SE SAIF NASDAQ 11/10/83 20.250 128.19 13.06
GFSB GFS Bancorp, Inc. Grinnell IA MW SAIF NASDAQ 01/06/94 20.000 10.19 13.07
GSLC Guaranty Financial Corp. Charlottesville VA SE SAIF NASDAQ NA 7.750 7.12 13.14
FSBC First Savings Bank, PSB Clovis NM SW SAIF NASDAQ 08/08/86 6.310 4.39 13.15
GSBC Great Southern Bancorp, Inc. Springfield MO MW SAIF NASDAQ 12/14/89 27.250 120.84 13.16
CBCI Calumet Bancorp, Inc. Dolton IL MW SAIF NASDAQ 02/20/92 27.750 73.89 13.21
GWF Great Western Financial Chatsworth CA WE SAIF NYSE NA 23.000 3155.71 13.22
ALBK ALBANK Financial Corp Albany NY MA SAIF NASDAQ 04/01/92 26.750 363.94 13.24
NHTB New Hampshire Thrift Bncshrs New London NH NE SAIF NASDAQ 05/22/86 10.000 17.00 13.24
FLFC First Liberty Financial Corp. Macon GA SE SAIF NASDAQ 12/06/83 21.750 86.40 13.26
HARB Harbor Federal Savings Bk, MHC Fort Pierce FL SE SAIF NASDAQ 01/06/94 28.750 141.60 13.37
DSBC DS Bancor, Inc. Derby CT NE BIF NASDAQ 12/11/85 30.500 92.39 13.44
RELY Reliance Bancorp, Inc. Garden City NY MA SAIF NASDAQ 03/31/94 15.125 139.54 13.50
SSBK Strongsville Savings Bank Strongsville 0H MW SAIF NASDAQ NA 21.750 55.04 13.51
SPBC St. Paul Bancorp, Inc. Chicago IL MW SAIF NASDAQ 05/18/87 24.375 452.15 13.54
TCB TCF Financial Corp. Minneapolis MN MW SAIF NYSE 06/17/86 35.375 1267.66 13.55
YFED York Financial Corp. York PA MA SAIF NASDAQ 02/01/84 17.250 103.79 13.58
WFCO Winton Financial Corp. Cincinnati OH MW SAIF NASDAQ 08/04/88 13.500 26.81 13.64
MLFB MLF Bancorp, Inc. Villanova PA MA SAIF NASDAQ 08/11/94 24.125 150.71 13.71
PWBC PennFirst Bancorp, Inc. Ellwood City PA MA SAIF NASDAQ 06/13/90 12.750 49.60 13.71
FFHS First Franklin Corporation Cincinnati 0H MW SAIF NASDAQ 01/26/88 14.375 17.06 13.82
NSSY Norwalk Savings Society Norwalk CT NE BIF NASDAQ 06/16/94 21.310 50.39 13.84
PBCT People's Bank, MHC Bridgeport CT NE BIF NASDAQ 07/06/88 21.250 832.27 13.89
BFSB Bedford Bancshares, Inc. Bedford VA SE SAIF NASDAQ 08/22/94 17.375 20.43 13.90
WCBI Westco Bancorp Westchester IL MW SAIF NASDAQ 06/26/92 28.875 51.55 13.95
FSBI Fidelity Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/24/88 17.500 21.69 14.00
</TABLE>
Source: SNL and F&C calculations.
4
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit VI - Selected Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Current Current Price/
Insurance Stock Market LTM Core
Agency Price Value EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CFSB CFSB Bancorp, Inc. Lansing MI MW SAIF NASDAQ 06/22/90 20.250 90.64 14.06
FFBI First Financial Bancorp, Inc. Belvidere IL MW SAIF NASDAQ 10/04/93 15.750 7.43 14.06
ASBI Ameriana Bancorp. New Castle IN MW SAIF NASDAQ 03/02/87 13.000 4 3.23 14.13
FFPB First Palm Beach Bancorp, Inc. West Palm Beach FL SE SAIF NASDAQ 09/29/93 21.500 111.38 14.14
SWBI Southwest Bancshares Hometown IL MW SAIF NASDAQ 06/24/92 27.000 50.52 14.14
FFFC FFVA Financial Corp. Lynchburg VA SE SAIF NASDAQ 10/12/94 31.250 89.12 14.27
BSBC Branford Savings Bank Branford CT NE BIF NASDAQ 11/04/86 3.000 15.54 14.29
THBC Troy Hill Bancorp, Inc. Pittsburgh PA MA SAIF NASDAQ 06/27/94 14.000 14.95 14.29
IFSB Independence Federal Savings Washington DC MA SAIF NASDAQ 06/06/85 7.750 9.90 14.35
MFLR Mayflower Co-operative Bank Middleboro MA NE BIF NASDAQ 12/23/87 12.250 10.70 14.41
DSL Downey Financial Corp. Newport Beach CA WE SAIF NYSE 01/01/71 21.625 367.04 14.42
FISB First Indiana Corporation Indianapolis IN MW SAIF NASDAQ 08/02/83 25.000 206.96 14.45
HMNF HMN Financial, Inc. Spring Valley MN MW SAIF NASDAQ 06/30/94 15.250 79.00 14.52
MCBS Mid Continent Bancshares Inc. El Dorado KS MW SAIF NASDAQ 06/27/94 17.875 37.02 14.53
TWIN Twin City Bancorp Bristol TN SE SAIF NASDAQ 01/04/95 16.000 14.37 14.55
SFSB SuburbFed Financial Corp. Flossmoor IL MW SAIF NASDAQ 03/04/92 16.500 20.80 14.60
CASH First Midwest Financial, Inc. Storm Lake IA MW SAIF NASDAQ 09/20/93 23.250 41.61 14.62
EBCP Eastern Bancorp Dover NH NE SAIF NASDAQ 11/17/83 24.000 57.55 14.63
POBS Portsmouth Bank Shares Portsmouth NH NE BIF NASDAQ 02/09/88 13.500 77.45 14.84
SHEN First Shenango Bancorp, Inc. New Castle PA MA SAIF NASDAQ 04/06/93 20.500 47.31 14.96
LIFB Life Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 10/11/94 14.250 148.24 15.00
SOSA Somerset Savings Bank Somerville MA NE BIF NASDAQ 07/09/86 1.500 24.98 15.00
STFR St. Francis Capital Corp. Milwaukee WI MW SAIF NASDAQ 06/21/93 26.250 156.60 15.00
DME Dime Bancorp, Inc. New York NY MA BIF NYSE 08/19/86 12.500 1,235.59 15.06
CJFC Central Jersey Financial East Brunswick NJ MA SAIF NASDAQ 09/01/84 27.750 74.04 15.08
SMFC Sho-Me Financial Corp. Mt. Vernon MO MW SAIF NASDAQ 07/01/94 15.750 25.94 15.14
PSSB Palm Springs Savings Bank Palm Springs CA WE SAIF NASDAQ NA 8.500 9.61 15.18
MORG Morgan Financial Corp. Fort Morgan CO SW SAIF NASDAQ 01/11/93 11.000 9.10 15.28
FFSW FirstFederal Financial Svcs Wooster OH MW SAIF NASDAQ 03/31/87 24.000 78.61 15.29
FLAG FLAG Financial Corp. LaGrange GA SE SAIF NASDAQ 12/11/86 13.500 25.87 15.34
CFCX Center Financial Corp. Waterbury CT NE BIF NASDAQ 08/13/86 17.250 249.91 15.40
MFSL Maryland Federal Bancorp Hyattsville MD MA SAIF NASDAQ 06/02/87 30.375 95.67 15.42
FCIT First Citizens Financial Corp. Gaithersburg MD MA SAIF NASDAQ 12/17/86 19.750 52.32 15.43
FFLC FFLC Bancorp, Inc. Leesburg FL SE SAIF NASDAQ 01/04/94 17.750 46.83 15.43
FFFG F.F.O. Financial Group, Inc. St. Cloud FL SE SAIF NASDAQ 10/13/88 2.625 22.13 15.44
HNFC Hinsdale Financial Corp. Hinsdale IL MW SAIF NASDAQ 07/07/92 21.000 56.49 15.44
CFX CFX Corporation Keene NH NE BIF AMSE 02/12/87 13.625 102.32 15.48
</TABLE>
Source: SNL and F&C calculations.
5
<PAGE>
FERGUSON & CO., LLP Exhibit VI-Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit
Insurance
Agency
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date
<S> <C> <C> <C> <C> <C> <C> <C>
OHSL OHSL Financial Corp. Cincinnati OH MW SAIF NASDAQ 02/10/93
THRD TF Financial Corp. Newtown PA MA SAIF NASDAQ 07/13/94
STSA Sterling Financial Corp. Spokane WA WE SAIF NASDAQ N/A
FFML First Family Financial Corp. Eustis FL SE SAIF NASDAQ 10/22/92
SFBM Security Bancorp Billings MT WE SAIF NASDAQ 11/20/86
LVSB Lakeviw Financial West Paterson NJ MA SAIF NASDAQ 12/22/93
FTFC First Federal Capital Corp. La Crosse WI MW SAIF NASDAQ 11/02/89
STND Standard Financial, Inc. Chicago IL MW SAIF NASDAQ 08/01/94
FFSX First Fed SB of Siouxland, MHC Sioux City IA MW SAIF NASDAQ 07/13/92
FFKY First Federal Financial Corp. Elizabethtown KY MW SAIF NASDAQ 07/15/87
JSBF JSB Financial, Inc. Lynbrook NY MA BIF NASDAQ 06/27/90
NWSB Northwest Savings Bank, MHC Warren PA MA SAIF NASDAQ 11/07/94
AADV Advantage Bancorp, Inc. Kenosha WI MW SAIF NASDAQ 03/23/92
SFFC StateFed Financial Corporation Des Moines IA MW SAIF NASDAQ 01/05/94
HALL Hallmark Capital Corp. West Allis WI MW SAIF NASDAQ 01/03/94
LISB Long Island Bancorp, Inc. Melville NY MA SAIF NASDAQ 04/18/94
RVSB Riverview Savings Bank, MHC Camas WA WE SAIF NASDAQ 10/26/93
HFFC HF Financial Corp. Sioux Falls SD MW SAIF NASDAQ 04/08/92
BTHL Bethel Bancorp Portland ME NE BIF NASDAQ 08/19/87
GFCO Glenway Financial Corp. Cincinnati OH MW SAIF NASDAQ 11/30/90
CFCP Coastal Financial Corp. Myrtle Beach SC SE SAIF NASDAQ 09/26/90
WSTR WesterFed Financial Corp. Missoula MT WE SAIF NASDAQ 01/10/94
CENF CENFED Financial Corp. Passadena CA WE SAIF NASDAQ 10/25/91
HOFL Home Financial Corp. Hollywood FL SE SAIF NASDAQ 10/25/94
FFYF FFY Financial Corp. Youngstown OH MW SAIF NASDAQ 06/28/93
GRTR Greater New York Savings Bank New York NY MA BIF NASDAQ 06/17/87
CNSK Covenant Bank for Savings Haddonfield NJ MA BIF NASDAQ N/A
HZFS Horizon Financial Svcs Corp. Oskaloosa IA MW SAIF NASDAQ 06/30/94
CMSB Commonwealth Savings Bank, M Valley Forge PA MA SAIF NASDAQ 01/24/94
MWFD Midwest Federal Financial Baraboo WI MW SAIF NASDAQ 07/08/92
MARN Marion Capital Holdings Marion IN MW SAIF NASDAQ 03/18/93
FFEC First Fed Bncshrs Eau Claire Eau Claire WI MW SAIF NASDAQ 10/12/94
PALM Palfed, Inc. Aiken SC SE SAIF NASDAQ 12/15/85
CSA Coast Savings Financial Los Angeles CA WE SAIF NYSE 12/23/85
LBFI L & B Financial, Inc. Sulphur Springs TX SW BIF NASDAQ 10/11/94
CEBK Central Co-Operative Bank Somerville MA NE BIF NASDAQ 10/24/86
TRIC Tri-County Bancorp, Inc. Torrington WY WE SAIF NASDAQ 09/30/93
<CAPTION>
FERGUSON & CO., LLP Exhibit VI-Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
Current Current
Stock Market Price/
Price Value LTM Core EPS
Ticker ($) ($M) (x)
<S> <C> <C> <C>
OHSL 22.000 26.94 15.49
THRD 14.125 63.89 15.52
STSA 13.750 74.60 15.63
FFML 21.750 11.85 15.65
SFBM 21.000 30.71 15.91
LVSB 19.625 47.12 15.96
FTFC 21.750 136.98 15.99
STND 14.875 249.38 15.99
FFSX 24.000 40.95 16.00
FFKY 35.750 75.49 16.03
JSBF 33.875 350.04 16.05
NWSB 24.250 283.43 16.06
AADV 34.000 117.79 16.11
SFFC 16.750 13.79 16.11
HALL 15.000 21.64 16.13
LISB 27.750 689.83 16.13
RVSB 17.000 36.64 16.19
HFFC 15.250 46.98 16.22
BTHL 12.500 15.04 16.23
GFCO 21.750 23.73 16.23
CFCP 21.000 56.90 16.28
WSTR 14.500 63.74 16.29
CENF 23.000 115.72 16.31
HOFL 13.875 343.69 16.32
FFYF 22.875 113.13 16.34
GRTR 11.125 147.84 16.36
CNSK 13.250 24.91 16.56
HZFS 16.125 7.22 16.62
CMSB 21.250 183.36 16.87
MWFD 28.500 23.27 17.38
MARN 20.375 38.97 17.41
FFEC 14.000 95.98 17.50
PALM 12.810 65.35 17.55
CSA 31.125 578.41 17.58
LBFI 15.000 25.01 17.65
CEBK 16.250 31.42 17.66
TRIC 17.500 11.21 17.68
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & CO., LLP Exhibit VI-Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
Deposit Current Current
Insurance Stock Market Price/
Agency Price Value LTM Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FBCI Fidelity Bancorp, Inc. Chicago IL MW SAIF NASDAQ 12/15/93 15.625 48.20 17.76
LBCI Liberty Bancorp, Inc. Chicago IL MW SAIF NASDAQ 12/24/91 23.125 57.51 17.79
IBSF IBS Financial Corp Cherry Hill NJ MA SAIF NASDAQ 10/13/94 13.750 156.89 17.86
LFED Leeds Federal Savings Bk, MHC Baltimore MD MA SAIF NASDAQ 05/02/94 14.375 49.57 17.97
GLBK Glendale Co-Operative Bank Everett MA NE BIF NASDAQ 01/10/94 17.125 4.23 18.03
QCBC Quaker City Bankcorp, Inc. Whittier CA WE SAIF NASDAQ 12/30/93 14.440 56.71 18.05
CMSV Community Savings, MHC North Palm Beach FL SE SAIF NASDAQ 10/24/94 15.000 72.83 18.07
HVFD Haverfield Corporation Cleveland OH MW SAIF NASDAQ 03/19/85 18.000 33.89 18.18
KNK Kankakee Bancorp, Inc. Kankakee IL MW SAIF AMSE 01/06/93 19.125 27.53 18.21
FFBS FFBS BanCorp, Inc. Columbus MS SE SAIF NASDAQ 07/01/93 19.500 30.67 18.22
HHFC Harvest Home Financial Corp. Cheviot OH MW SAIF NASDAQ 10/10/94 12.250 10.97 18.28
SCCB S. Carolina Community Bancshrs Winnsboro SC SE SAIF NASDAQ 07/07/94 16.500 12.87 18.33
FNGB First Northern Capital Corp. Green Bay WI MW SAIF NASDAQ 12/29/83 15.875 72.34 18.46
FFFL Fidelity FSB of Florida, MHC West Palm Beach FL SE SAIF NASDAQ 01/07/94 13.500 90.69 18.49
JSBA Jefferson Savings Bancorp Ballwin MO MW SAIF NASDAQ 04/08/93 30.000 125.21 18.52
ETFS East Texas Financial Services Tyler TX SW SAIF NASDAQ 01/10/95 15.750 17.86 18.53
INCB Indiana Community Bank, SB Lebanon IN MW SAIF NASDAQ 12/15/94 14.750 13.60 18.67
CTZN CitFed Bancorp, Inc. Dayton OH MW SAIF NASDAQ 01/23/92 34.750 196.41 18.89
FCBF FCB Financial Corp. Neenah WI MW SAIF NASDAQ 09/24/93 17.625 44.28 18.95
LARK Landmark Bancshares, Inc. Dodge City KS MW SAIF NASDAQ 03/28/94 14.625 30.03 18.99
NTMG Nutmeg Federal S&LA Danbury CT NE SAIF NASDAQ NA 7.250 5.13 19.08
SECP Security Capital Corporation Milwaukee WI MW SAIF NASDAQ 01/03/94 58.250 555.45 19.29
CNIT CENIT Bancorp, Inc. Norfolk VA SE SAIF NASDAQ 08/06/92 34.625 55.62 19.45
FIBC Financial Bancorp, Inc. Long Island City NY MA SAIF NASDAQ 08/17/94 13.250 24.82 19.49
FBSI First Bancshares, Inc. Mountain Grove MO MW SAIF NASDAQ 12/22/93 16.500 21.48 19.64
SOPN First Savings Bancorp, Inc. Southern Pines NC SE SAIF NASDAQ 01/06/94 19.125 71.60 19.72
HARS Harris Savings Bank, MHC Harrisburg PA MA SAIF NASDAQ 01/25/94 16.750 187.77 19.94
GLN Glendale Federal Bank, FSB Glendale CA WE SAIF NYSE 10/01/83 17.500 771.49 20.11
SBCN Suburban Bancorporation, Inc. Cincinnati OH MW SAIF NASDAQ 09/30/93 15.500 22.95 20.13
CARV Carver Federal Savings Bank New York NY MA SAIF NASDAQ 10/25/94 8.750 20.25 20.35
EFBI Enterprise Federal Bancorp Lockland OH MW SAIF NASDAQ 10/17/94 14.250 31.04 20.65
HRBF Harbor Federal Bancorp, Inc. Baltimore MD MA SAIF NASDAQ 08/12/94 13.125 24.39 21.52
GTFN Great Financial Corporation Louisville KY MW SAIF NASDAQ 03/31/94 27.375 401.11 21.56
MFFC Milton Federal Financial Corp. West Milton OH MW SAIF NASDAQ 10/07/94 15.500 35.67 22.14
MFBC MFB Corp. Mishawaka IN MW SAIF NASDAQ 03/25/94 14.250 29.61 22.27
BRFC Bridgeville Savings Bank Bridgeville PA MA SAIF NASDAQ 10/07/94 14.000 15.74 22.58
SMBC Southern Missouri Bancorp, Inc. Poplar Bluff MO MW SAIF NASDAQ 04/13/94 14.500 24.99 22.66
</TABLE>
7
Source: SNL and F&C calculations.
<PAGE>
FERGUSON & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Deposit Current Current
Insurance Stock Market Price/
Agency Price Value LTM Core EPS
Ticker Short Name City State Region (BIF/SAIF) Exchange IPO Date ($) ($M) (x)
<C> <S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BKC American Bank of Connecticut Waterbury CT NE BIF AMSE 12/01/81 25.625 58.55 22.68
PMFI Perpetual Midwest Financial Cedar Rapids IA MW SAIF NASDAQ 03/31/94 17.000 34.29 22.97
OFCP Ottawa Financial Corp. Holland MI MW SAIF NASDAQ 08/19/94 16.250 88.64 23.21
FSFC First Southeast Financial Corp. Anderson SC SE SAIF NASDAQ 10/08/93 18.750 76.89 23.44
WAYN Wayne Savings and Loan Co. MHC Wooster OH MW SAIF NASDAQ 06/25/93 22.000 31.31 23.91
HMCI HomeCorp, Inc Rockford IL MW SAIF NASDAQ 06/22/90 17.750 19.99 23.99
FED FirstFed Financial Corp. Santa Monica CA WE SAIF NYSE 12/16/83 16.125 171.32 24.43
MBLF MBLA Financial Corp. Macon MO MW SAIF NASDAQ 06/24/93 23.750 33.27 24.74
Maximum 58.250 3,155.710 24.740
Minimum 1.500 4.230 3.160
Average 19.131 156.490 13.916
Median 17.625 49.570 13.440
</TABLE>
<PAGE>
FURGUSON & CO., LLP
- --------------------
Exhibit VI - Selected Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return
on Avg.
Tangible Assets ROACE
Current Current Current Total Equity/ Equity/ Core Before Before
Price/ Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Extra Extra Merger
Book Value Book Value Assets Yield ($000) (%) ($) ($) (%) (%) Target?
Ticker (%) (%) (%) (%) MstRctQ MstRctQ MstRctQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PKPS 87.87 87.87 7.47 2.000 839,174 8.49 8.49 1.58 1.94 25.03 N
NMSB 88.48 88.48 9.86 2.909 291,578 11.13 11.13 1.34 2.07 19.16 N
EQSB 102.23 102.23 5.29 0.000 255,127 5.18 5.18 4.24 1.13 21.89 N
SISB 106.87 106.87 8.50 0.000 1,135,170 7.42 7.42 2.52 1.27 17.72 N
WSFS 146.35 NA 8.58 0.000 1,259,332 5.86 NA 1.11 2.20 41.46 N
BFSI 137.46 137.46 11.19 0.000 566,452 8.14 8.14 5.61 1.84 24.94 N
LSBX 102.00 102.00 7.71 0.000 323,523 7.56 7.56 0.79 1.14 14.78 N
IPSW 124.65 124.65 7.88 2.222 134,065 6.32 6.32 1.20 1.38 22.40 N
KSBK 88.87 96.56 6.09 0.964 127,372 6.85 6.34 2.75 0.79 12.20 N
WRNB 133.20 133.20 11.92 3.516 354,882 8.95 8.95 1.42 1.65 19.83 N
SFSL 101.03 103.98 8.92 3.404 458,294 8.83 8.60 1.44 1.33 15.39 N
CBCO 102.91 102.91 9.43 0.000 204,825 9.16 9.16 1.94 1.41 13.87 N
PCCI 102.67 102.67 8.12 0.000 286,926 7.91 7.91 0.93 1.36 23.43 N
DNFC 125.49 127.50 7.07 0.000 1,231,927 5.63 5.55 1.50 1.06 19.97 N
HPBC 137.25 137.25 15.45 4.286 166,866 11.26 11.26 1.59 1.74 15.09 N
HOMF 113.90 118.65 9.33 2.000 595,016 8.19 7.89 2.83 1.17 15.06 N
NASB 144.73 151.06 10.50 2.080 656,855 7.25 6.97 3.34 1.36 18.76 N
IROQ 122.67 122.67 7.55 2.207 451,060 7.19 7.19 1.61 0.98 14.79 N
FMCO 109.26 112.34 7.19 1.356 505,700 6.58 6.41 1.63 0.84 13.06 N
FFES 78.48 78.76 4.86 3.429 933,433 6.20 6.18 1.92 0.60 8.81 N
MAFB 125.54 125.54 6.95 1.219 1,980,184 5.54 5.54 2.87 0.91 15.57 N
GROV 108.24 108.47 6.75 2.796 586,433 6.24 6.23 2.75 0.81 13.29 N
COFD 138.09 148.64 9.73 3.316 5,058,597 7.05 6.58 2.55 1.05 15.87 N
FSBX 155.64 155.64 11.62 2.500 477,665 7.48 7.48 0.42 1.26 17.00 N
FSPG 126.43 130.30 8.40 2.560 453,039 6.64 6.64 1.96 1.11 17.52 N
WLDN 105.67 123.46 9.90 3.368 1,019,288 9.37 8.13 1.98 0.98 10.83 N
CBSA 97.28 119.83 3.22 2.192 2,806,740 3.31 2.71 1.90 0.37 10.64 N
ANDB 111.32 111.32 8.53 2.682 1,110,847 7.67 7.67 2.32 0.87 11.51 N
MSEA 105.76 116.94 6.91 0.000 778,165 6.54 5.95 1.50 0.76 11.97 N
DIBK 133.62 141.17 10.49 2.036 658,373 7.85 7.46 1.42 0.95 12.82 N
NFSL 139.97 140.85 16.21 2.222 160,656 11.58 11.51 1.84 1.89 17.69 N
FFRV 112.48 112.57 9.60 1.208 314,413 8.54 8.53 1.35 1.00 11.99 N
PHBK 128.54 149.32 10.77 3.257 3,301,647 8.37 7.29 2.21 1.21 14.11 N
VFFC 118.50 122.89 9.14 0.860 713,931 7.72 7.46 1.18 1.21 16.02 N
PSBK 103.74 103.74 9.19 2.915 785,554 8.86 8.86 2.78 0.99 10.53 N
AMFB 160.71 174.61 12.76 2.540 1,345,884 8.16 7.56 1.59 1.41 17.81 N
EBSI 123.85 123.85 8.24 3.525 558,315 6.65 6.65 1.48 0.97 13.77 N
</TABLE>
9
Source: SNL and F&C calculations.
<PAGE>
FERGUSON & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Current Current Current Total Equity/
Price/ Price/Tang Price/ Dividend Assets Assets
Book Value Book Value Assets Yield ($000) (%)
Ticker (%) (%) (%) (%) Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C>
PFNC 134.76 135.81 7.44 0.000 347,991 5.52
FFED 221.87 221.87 11.38 7.143 277,526 5.13
HIFS 104.47 104.47 10.49 2.207 179,389 10.04
LARL 119.58 119.58 12.52 2.000 192,654 10.47
WAMU 140.29 157.76 8.94 3.171 22,344,769 7.38
FESX 108.86 108.86 8.10 4.414 808,792 7.44
MDBK 106.55 117.48 9.47 3.317 980,973 8.89
FFBZ 138.72 138.89 10.08 1.798 173,191 7.81
NYB 180.41 180.41 10.43 3.265 2,754,437 5.78
HSBK 99.06 99.06 6.52 1.898 346,865 6.58
CFB 144.43 160.77 8.74 1.042 6,617,488 6.05
EGFC 108.21 120.19 8.02 3.978 1,290,670 7.42
CAPS 95.00 95.00 10.26 1.895 192,464 10.80
FFHC 176.69 186.21 12.96 2.553 5,419,203 7.34
AFFFZ 109.30 112.20 6.84 5.818 2,416,953 6.46
FBHC 87.84 87.84 6.39 1.514 241,761 7.27
PVSA 131.01 131.64 9.73 1.891 914,016 7.42
MASB 102.60 102.60 10.42 2.687 858,922 10.16
BKCO 117.48 120.14 11.55 3.294 1,901,915 9.83
PLE 97.24 100.96 7.50 4.397 194,311 7.71
PTRS 78.57 78.57 7.70 1.455 114,242 9.79
UFRM 116.49 116.49 9.78 2.540 246,918 8.39
HARL 123.25 123.25 8.69 2.162 273,997 7.05
RFED 177.75 NA 8.88 3.221 9,134,660 5.57
CTBK 85.78 85.78 6.07 1.714 214,975 7.08
FFWC 89.78 89.78 10.13 2.462 146,028 11.28
FMSB 151.44 151.44 10.06 1.311 370,986 6.64
NSBK 134.84 NA 10.43 2.920 1,580,435 7.74
PULS 108.38 108.38 12.88 4.667 452,455 11.89
RCSB 115.08 119.05 7.72 2.043 4,111,153 9.03
PVFC 151.06 151.06 9.91 0.000 312,466 6.56
SWCB 100.36 108.09 8.46 5.128 426,515 8.38
WBST 114.34 150.41 5.90 2.306 3,813,173 5.61
MWBI 100.64 100.64 6.98 1.944 136,809 6.94
BKCT 111.31 111.31 12.53 4.047 383,978 11.25
PBNB 89.36 96.56 9.66 4.293 406,276 10.81
HRZB 103.91 103.91 16.82 2.560 488,968 16.19
</TABLE>
Source: SNL and F&C calculations.
<TABLE>
<CAPTION>
Tangible Return on ROACE
Equity/ Core Avg Assets Before
Tang Assets EPS Before Extra Extra Merger
(%) ($) (%) (%) Target?
Ticker Mst RctQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C>
PFNC 5.48 0.69 0.86 19.35 N
FFED 5.13 1.39 1.45 28.84 N
HIFS 10.04 1.44 1.12 10.71 N
LARL 10.47 1.58 1.35 13.39 N
WAMU 6.74 2.74 1.00 15.17 N
FESX 7.44 1.07 0.91 12.83 N
MDBK 8.13 2.01 1.03 11.58 N
FFBZ 7.80 2.18 1.10 14.88 N
NYB 5.78 2.40 1.19 19.84 N
HSBK 6.58 1.44 0.86 12.76 N
CFB 5.47 3.73 0.84 15.33 N
EGFC 6.73 2.24 0.92 12.33 N
CAPS 10.80 1.82 0.99 9.23 N
FFHC 6.99 2.24 1.29 19.10 N
AFFFZ 6.30 2.62 0.73 11.46 N
FBHC 7.27 1.75 0.74 10.08 N
PVSA 7.39 2.59 1.04 15.22 N
MASB 10.16 3.08 1.05 10.32 N
BKCO 9.63 1.59 1.11 11.23 N
PLE 7.45 1.53 0.77 10.29 N
PTRS 9.79 1.54 0.74 7.88 N
UFRM 8.39 0.73 1.00 12.75 N
HARL 7.05 1.71 0.82 11.94 N
RFED NA 1.77 0.66 14.19 N
CTBK 7.08 1.28 0.56 8.07 N
FFWC 11.28 1.78 0.87 7.67 N
FMSB 6.64 1.39 1.03 15.31 N
NSBK NA 3.09 1.15 15.68 N
PULS 11.89 1.34 1.17 10.04 N
RCSB 8.81 2.10 1.05 11.55 N
PVFC 6.56 1.78 1.14 18.41 N
SWCB 7.83 1.73 0.83 10.21 N
WBST 4.43 2.46 0.56 10.43 N
MWBI 6.94 2.36 0.99 14.16 N
BKCT 11.25 1.87 1.17 10.67 N
PBNB 10.09 1.80 0.85 7.81 N
HRZB 16.19 1.09 1.53 9.51 N
</TABLE>
Source: SNL and F&C calculations.
10
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
Tangable Return on ROACE
Current Current Current Total Equity/ Equity/ Core Avg Assets Before
Price/ Price/Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger
Book Value Book Value Assets Yield ($000) (%) (%) (%) (%) (%) Target?
Ticker (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
HAVN 109.99 110.65 6.93 1.667 1,485,076 6.30 6.26 2.09 0.68 10.21 N
SFB 132.00 154.66 9.18 1.918 13,505,427 6.95 6.00 3.44 0.93 13.88 N
FFSL 82.31 82.31 10.41 2.207 101,628 12.64 12.64 1.57 1.13 8.56 N
SVRN 146.77 226.58 6.33 0.755 8,411,108 5.21 3.83 0.96 0.80 16.63 N
CAL 136.66 136.66 6.17 0.000 14,280,100 6.38 6.38 1.54 0.76 13.79 N
NWEQ 77.16 77.16 11.82 3.600 82,976 14.06 14.06 0.86 1.15 7.49 N
MSBB 63.82 64.95 6.18 3.478 454,126 9.69 9.54 1.48 0.55 5.65 N
PBCI 110.00 111.01 17.59 4.675 371,365 15.99 15.86 1.65 1.49 9.71 N
PFDC 108.58 108.58 16.57 2.835 280,778 15.26 15.26 1.69 1.45 9.58 N
COFI 172.99 NA 11.94 2.638 13,173,988 6.90 NA 2.98 0.28 4.31 N
PFSB 79.97 101.26 8.72 0.000 935,037 10.03 8.10 1.30 0.71 6.33 N
WFSL 149.57 157.30 18.15 4.190 4,928,989 12.13 11.61 1.78 1.75 13.78 N
FMLY 123.22 134.65 9.56 2.313 887,387 7.76 7.14 1.74 0.96 12.56 N
IFSL 117.66 128.56 11.54 4.085 721,333 9.81 9.05 1.47 1.00 10.74 N
GDW 132.26 140.60 8.81 0.722 35,013,718 6.66 6.29 4.36 0.75 11.76 N
PFSL 109.97 109.97 6.54 5.067 369,379 5.95 5.95 1.24 0.56 9.45 N
MERI 151.24 151.24 11.25 1.818 227,121 7.44 7.44 2.71 1.02 14.10 N
CBNH 112.76 NA 8.15 3.429 516,837 7.23 NA 1.43 0.80 11.04 N
FFWD 95.26 95.26 13.69 1.946 140,383 14.37 14.37 1.51 1.18 8.22 N
BANC 138.40 153.06 9.53 1.117 1,750,689 6.89 6.27 1.28 1.07 15.11 N
GBCI 189.24 189.55 18.22 2.695 398,220 9.63 9.61 1.93 1.59 16.25 N
FFPC 136.22 136.22 9.43 2.824 304,040 6.93 6.93 0.69 0.86 12.90 N
KSAV 83.94 84.02 12.73 3.478 89,871 15.16 15.15 1.40 1.14 6.85 N
CAFI 129.89 129.89 10.38 2.411 346,468 7.99 7.99 1.48 1.08 13.96 N
QCSB 125.00 125.00 21.22 2.286 1,259,485 16.98 16.98 3.53 1.74 9.84 N
CVAL 115.14 115.14 10.59 1.973 270,695 9.20 9.20 1.46 0.89 9.98 N
FOBC 91.50 96.65 11.09 3.570 339,562 12.12 11.55 1.21 1.00 7.74 N
PSAB 114.96 NA 10.85 3.831 608,967 9.44 NA 1.42 1.02 10.89 N
WSB 99.40 99.40 8.03 2.000 262,632 8.08 8.08 0.40 0.92 12.60 N
GPT 86.58 151.97 10.47 2.771 14,469,048 10.58 6.31 2.30 0.96 6.86 N
FSFI 108.50 114.61 7.81 1.833 597,269 7.20 6.84 0.95 0.74 11.15 N
IWBK 163.19 168.02 11.22 2.010 1,368,548 6.88 6.69 1.89 1.08 14.78 N
LOAN 149.40 154.75 12.30 1.422 126,884 8.64 8.37 0.89 1.53 17.40 N
MCBN 91.26 91.26 8.00 2.581 55,406 8.77 8.77 1.53 0.68 7.73 N
PBKB 109.21 118.29 6.63 2.162 324,440 6.06 5.63 0.73 0.81 11.65 N
WVFC 102.61 102.61 16.02 1.882 230,276 15.62 15.62 1.67 1.18 7.77 N
FGHC 143.74 163.55 10.27 0.000 135,582 8.30 7.36 0.55 0.89 11.09 N
</TABLE>
Source: SNL and F&C calculations. 11
<PAGE>
<TABLE>
<CAPTION>
FERGUSON & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
Current Current Current Total Equity/
Price/ Price/Tang Price/ Dividend Assets Assets
Book Value Book Value Assets Yield ($000) (%)
Ticker (%) (%) (%) (%) Mst RctQ Vst RctQ
<S> <C> <C> <C> <C> <C> <C>
MIFC 108.35 108.52 9.78 1.185 119,395 9.02
ABCW 139.53 143.01 9.98 1.203 1,707,062 7.16
CFFC 123.60 123.60 16.90 2.476 157,766 13.68
CIBI 90.08 90.08 12.47 1.049 85,785 13.84
FSLA 108.77 126.05 10.33 3.333 945,012 9.49
NSSB 94.81 100.04 10.67 3.107 675,332 11.26
RARB 117.50 120.57 8.73 2.892 354,810 7.43
UBMT 90.44 90.44 19.51 4.712 114,440 21.57
MGNL 200.06 212.06 19.54 1.655 1,290,780 9.77
ROSE 116.53 116.53 7.90 2.415 3,001,958 6.23
ASFC 101.80 125.12 8.70 1.653 6,708,166 8.55
FFCH 135.18 135.54 9.03 3.160 1,416,608 6.68
GFSB 105.71 105.71 12.72 1.500 80,913 12.04
GSLC 112.65 112.65 7.38 0.000 96,577 6.55
FSBC 78.09 78.08 3.75 0.000 116,966 4.80
GSBC 191.77 195.20 19.13 2.569 658,834 9.97
CBCI 86.75 86.75 14.74 0.000 502,419 16.99
GWF 124.86 142.59 7.21 4.348 43,762,730 6.45
ALBK 113.44 128.54 10.92 1.794 3,333,105 9.63
NHTB 86.95 86.95 6.58 4.970 258,216 7.57
FLFC 131.90 158.64 9.32 2.391 927,108 7.88
HARB 171.33 171.33 15.18 4.174 932,858 8.86
DSBC 113.00 116.99 7.40 0.787 1,247,739 6.55
RELY 90.30 133.85 8.00 3.041 1,744,365 8.86
SSBK 131.82 N/A 10.91 2.207 504,631 8.28
SPBC 118.10 118.50 10.91 1.641 4,142,858 9.24
TCB 234.27 244.98 18.01 2.120 7,039,282 7.69
YFED 115.08 115.08 9.84 3.478 1,054,864 8.55
WFCO 129.56 133.14 10.22 3.111 262,329 7.89
MLFB 99.48 101.79 8.89 2.653 1,757,048 8.23
PWBC 92.59 101.51 7.71 2.824 659,371 8.33
FFHS 83.04 83.04 7.89 1.948 216,124 9.50
NSSY 115.56 115.56 9.78 0.000 515,267 8.46
PBCT 150.50 150.50 12.03 3.765 6,916,300 8.17
BFSB 103.05 103.05 17.65 2.072 117,596 16.10
WCBI 106.55 106.55 16.67 2.355 309,265 15.64
FSBI 95.26 96.31 7.54 1.829 287,465 7.91
</TABLE>
<TABLE>
<CAPTION>
Tangible Return on ROACE
Equity/ Core Avg Assets Before
Tang Assets EPS Before Extra Extra Merger
(%) ($) (%) (%) Target?
Ticker Mst RctQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C>
MIFC 9.01 0.53 0.84 8.90 N
ABCW 7.00 2.60 0.89 12.07 N
CFFC 13.68 1.64 1.34 10.20 N
CIBI 13.84 1.19 1.01 7.00 N
FSLA 8.30 1.17 0.91 10.02 N
NSSB 10.73 1.00 0.87 7.59 N
RARB 7.25 1.61 0.80 10.53 N
UBMT 21.57 1.41 1.62 7.22 N
MGNL 9.23 2.80 1.80 18.27 N
ROSE 6.23 2.04 0.86 12.63 N
ASFC 7.07 4.08 0.75 8.47 N
FFCH 6.66 1.55 0.72 10.75 N
GFSB 12.04 1.53 1.08 8.47 N
GSLC 6.55 0.59 0.57 9.97 N
FSBC 4.80 0.48 0.34 7.76 N
GSBC 9.82 2.07 1.64 16.20 N
CBCI 16.99 2.10 1.21 7.24 N
GWF 5.77 1.74 0.65 11.05 N
ALBK 8.59 2.02 0.98 9.31 N
NHTB 7.57 0.76 0.51 6.59 N
PLC 6.77 1.64 1.02 14.49 N
HARB 8.86 2.15 1.19 13.70 N
DSBC 6.34 2.27 0.66 10.25 N
RELY 6.16 1.12 0.91 6.81 N
SSBK NA 1.61 1.00 11.88 N
SPBC 9.21 1.80 0.89 9.59 N
TCB 7.37 2.61 1.37 20.18 N
YFED 8.55 1.27 0.92 10.78 N
WFCO 7.70 0.99 0.94 12.54 N
MLFB 8.06 1.76 0.69 7.43 N
PWBC 7.65 0.93 0.61 7.44 N
FFHS 9.50 1.04 0.63 6.61 N
NSSY 8.46 1.54 0.99 11.65 N
PBCT 8.17 1.53 1.15 14.62 N
BFSB 16.10 1.25 1.26 7.56 N
WCBI 15.64 2.07 1.32 8.46 N
FSBI 7.83 1.25 0.57 7.31 N
</TABLE>
Source: SNL and F&C calculations.
12
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit VI - Selected Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Current Current Current Total Equity/
Price/ Price/Tang Price/ Dividend Assets Assets
Book Value Book Value Assets Yield ($000) (%)
Ticker (%) (%) (%) (%) Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C> <C>
CFSB 141.61 141.61 11.75 2.173 771,672 8.30
FFBI 94.42 94.42 9.93 0.000 74,874 10.51
ASBI 96.94 97.09 11.28 4.317 383,072 11.64
FFPB 101.37 104.02 8.40 1.860 1,378,589 8.29
SWBI 120.43 120.43 14.45 4.000 349,543 12.00
FFFC 94.21 96.09 17.92 2.560 497,290 17.71
BSBC 129.87 129.87 11.28 0.000 174,403 8.70
THBC 83.68 83.68 18.58 2.857 80,484 22.20
IFSB 57.97 67.45 3.75 2.839 263,740 6.48
MFLR 97.92 100.16 9.66 3.265 110,680 9.87
DSL 94.72 96.41 7.89 2.220 4,652,584 8.33
FISB 156.54 158.83 14.01 2.240 1,476,879 8.95
HMNF 86.94 86.94 14.58 0.000 542,012 16.77
MCBS 97.62 97.78 13.76 2.238 271,700 13.34
TWIN 101.98 101.98 14.03 4.000 102,423 13.76
SFSB 80.37 80.88 5.74 1.939 362,272 7.14
CASH 107.69 115.38 13.26 1.892 314,812 12.31
EBCP 90.63 96.27 6.98 3.000 824,899 7.70
POBS 114.31 114.31 28.97 4.359 267,272 25.36
SHEN 100.49 100.49 13.30 1.951 355,710 13.24
LIFB 96.68 NA 12.31 3.088 1,204,577 12.73
SOSA 89.82 89.82 4.90 0.000 509,502 5.46
STFR 113.15 118.46 13.20 1.524 1,203,689 11.48
DME 136.02 NA 6.36 0.000 19,413,115 5.08
CJFC 134.84 145.06 15.88 1.730 466,208 11.78
SMFC 82.12 82.12 9.83 0.000 263,890 11.98
PSSB 83.66 83.66 4.91 1.412 195,666 5.87
MORG 86.34 86.34 12.86 2.182 70,748 14.90
FFSW 163.15 179.37 7.91 2.000 993,459 7.73
FLAG 141.66 141.66 11.14 2.222 232,105 8.92
CFCX 111.58 119.46 6.81 1.623 3,669,518 6.10
MFSL 101.79 103.53 8.37 2.107 1,143,338 8.22
FCIT 134.45 134.45 8.55 0.000 607,429 6.36
FFLC 83.49 83.49 14.17 2.254 330,514 16.97
FFFG 117.19 117.19 7.34 0.000 301,485 6.23
HNFC 103.96 NA 8.28 0.000 682,029 7.97
CFX 113.73 127.81 11.36 5.284 900,549 9.99
<CAPTION>
Tangible Return on ROACE
Equity/ Core Avg Assets Before
Tang Assets EPS Before Extra Extra Merger
(%) ($) (%) (%) Target/
Ticker Mst RctQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C>
CFSB 8.30 1.44 0.94 11.56 N
FFBI 10.51 1.12 0.88 8.05 N
ASBI 11.62 0.92 0.93 7.20 N
FFPB 8.10 1.52 0.64 7.44 N
SWBI 12.00 1.91 1.19 8.83 N
FFFC 17.42 2.19 1.35 7.44 N
BSBC 8.70 0.21 0.77 9.18 N
THBC 22.20 0.98 1.38 6.13 N
IFSB 5.62 0.54 0.54 8.99 N
MFLR 9.67 0.85 0.85 7.90 N
DSL 8.19 1.50 0.61 7.57 N
FISB 8.84 1.73 1.18 13.88 N
HMNF 16.77 1.05 1.10 6.27 N
MCBS 13.32 1.23 1.68 11.50 N
TWIN 13.76 1.10 1.08 7.84 N
SFSB 7.10 1.13 0.51 6.97 N
CASH 11.59 1.59 1.29 9.64 N
EBCP 7.28 1.64 0.61 8.21 N
POBS 25.36 0.91 2.31 9.23 N
SHEN 13.24 1.37 1.01 7.19 N
LIFB NA 0.95 0.86 5.94 N
SOSA 5.46 0.10 0.33 6.38 N
STFR 11.03 1.75 1.22 11.04 N
DME NA 0.83 0.33 6.92 N
CJFC 11.04 1.84 1.11 10.78 N
SMFC 11.98 1.04 0.83 6.26 N
PSSB 5.87 0.56 0.62 11.18 N
MORG 14.90 0.72 0.97 6.13 N
FFSW 7.28 1.57 1.06 NA N
FLAG 8.92 0.88 0.87 9.78 N
CFCX 5.72 1.12 0.69 11.34 N
MFSL 8.09 1.97 0.79 9.72 N
FCIT 6.36 1.28 0.71 11.37 N
FFLC 16.97 1.15 0.94 5.43 N
FFFG 6.23 0.17 0.64 9.17 N
HNFC NA 1.36 0.62 8.23 N
CFX 8.99 0.88 0.91 8.90 N
</TABLE>
Source: SNL and F&C calculations.
13
<PAGE>
FERGUSON & CO., LLP Exhibit VI-Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Current Current Current Total
Price/ Price/Tang Price/ Dividend Assets
Book Value Book Value Assets Yield ($000)
Ticker (%) (%) (%) (%) Mst. RctQ
<S> <C> <C> <C> <C> <C>
OHSL 105.57 105.57 13.11 3.455 205,462
THRD 79.35 79.35 12.31 2.265 519,196
STSA 121.68 151.77 4.98 0.000 1,497,617
FFML 137.92 137.92 7.73 0.736 153,250
SFBM 96.77 112.72 8.52 3.000 365,307
LVSB 96.20 123.51 10.69 1.274 440,940
FTFC 144.71 153.71 9.91 2.943 1,382,069
STND 92.68 92.74 11.40 2.151 2,186,603
FFSX 111.52 112.10 9.38 3.000 436,519
FFKY 155.10 166.67 22.10 2.685 341,604
JSBF 104.62 104.62 23.03 3.542 1,545,195
NWSB 148.05 149.88 16.04 2.474 1,767,455
AADV 129.92 150.78 12.10 0.941 973,305
SFFC 92.44 92.44 18.59 2.388 74,182
HALL 82.15 82.15 6.90 0.000 313,681
LISB 133.48 133.48 14.27 1.441 4,834,406
RVSB 162.21 184.58 17.89 1.176 204,794
HFFC 91.76 92.03 8.32 2.164 558,819
BTHL 89.61 106.93 6.96 2.560 216,199
GFCO 90.21 92.63 8.49 3.126 278,609
CFCP 218.07 218.07 13.32 2.381 428,352
WSTR 81.60 81.60 10.84 2.345 588,255
CENF 110.31 110.58 5.36 1.423 2,151,421
HOFL 104.17 104.17 28.00 5.766 1,227,371
FFYF 112.96 112.96 20.73 2.623 573,162
GRTR 103.87 103.87 5.74 0.000 2,575,726
CNSK 146.57 146.57 8.20 0.000 303,656
HZFS 85.77 85.77 10.40 1.984 73,105
CMSB 133.82 153.10 12.60 2.353 1,455,700
MWFD 140.67 147.67 13.13 1.053 177,164
MARN 94.86 94.86 22.76 3.534 179,329
FPEC 100.65 105.03 15.44 2.000 621,590
PALM 126.96 133.86 10.12 0.625 646,024
CSA 135.98 138.27 7.02 0.000 8,239,880
LBFI 97.21 97.21 17.42 2.667 143,572
CEBK 99.21 113.72 9.87 0.000 318,191
TRIC 83.10 83.10 17.05 2.857 65,766
</TABLE>
<TABLE>
<CAPTION>
Tangible Return on ROACE
Equity/ Equity/ Core Avg Assets Before
Assets Tang Assets EPS Before Extra Extra Merger
(%) (%) ($) (%) (%) Target?
Mst RclQ Mst RclQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C>
OHSL 12.42 12.42 1.42 0.95 7.51 N
THRD 14.31 14.31 0.91 0.92 5.60 N
STSA 5.83 5.04 0.88 0.45 7.72 N
FFML 5.61 5.61 1.39 0.82 16.15 N
SFBM 8.81 7.66 1.32 0.69 8.17 N
LVSB 11.11 8.87 1.23 1.55 13.34 N
FTFC 6.85 6.48 1.36 0.92 13.46 N
STND 12.30 12.30 0.93 0.88 6.22 N
FFSX 8.41 8.38 1.50 0.63 7.79 N
FFKY 14.25 13.39 2.23 1.70 11.45 N
JSBF 22.01 22.01 2.11 1.44 6.67 N
NWSB 10.67 10.56 1.51 1.05 9.34 N
AADV 9.95 8.69 2.11 0.89 9.50 N
SFFC 20.12 20.12 1.04 1.18 5.80 N
HALL 8.40 8.40 0.93 0.56 5.74 N
LISB 10.69 10.69 1.72 0.95 8.72 N
RVSB 11.03 9.83 1.05 1.21 11.26 N
HFFC 9.07 9.04 0.94 0.65 7.27 N
BTHL 8.69 7.53 0.77 0.74 9.06 N
GFCO 9.41 9.18 1.34 0.56 5.86 N
CFCP 6.11 6.11 1.29 0.95 15.65 N
WSTR 13.28 13.28 0.89 0.76 5.68 N
CENF 4.86 4.85 1.41 0.36 7.46 N
HOFL 25.52 25.52 0.85 1.70 6.60 N
FFYF 18.35 18.35 1.40 1.21 6.50 N
GRTR 7.69 7.69 0.68 0.75 8.37 N
CNSK 8.35 8.35 0.80 0.72 11.75 N
HZFS 12.12 12.12 0.97 0.71 5.55 N
CMSB 9.41 8.33 1.26 0.85 8.95 N
MWFD 9.34 8.93 1.64 1.11 11.34 N
MARN 24.00 24.00 1.17 1.41 5.79 N
FPEC 15.34 14.79 0.80 1.10 6.17 N
PALM 7.97 7.59 0.73 0.64 8.54 N
CSA 5.16 5.08 1.77 0.46 9.62 N
LBFI 17.92 17.92 0.85 1.09 5.72 N
CEBK 9.95 8.80 0.92 0.60 6.40 N
TRIC 20.52 20.52 0.99 1.01 4.95 N
</TABLE>
Source: SNL and F&C calculations.
14
<PAGE>
FERGUSON & CO., LLP Exhibit VI-Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Current Current Current Total
Price/ Price/Tang Price/ Dividend Assets
Book Value Book Value Assets Yield ($000)
Ticker (%) (%) (%) (%) Mst RctQ
<S> <C> <C> <C> <C> <C>
FBCI 92.40 92.73 11.13 1.536 433,027
LBCI 90.12 90.37 8.58 2.595 669,949
IBSF 101.63 101.63 20.73 1.745 756,928
LFED 115.09 115.09 19.02 4.452 260,622
GLBK 72.29 72.29 11.79 0.000 35,903
QCBC 82.85 83.32 8.18 0.000 692,974
CMSV 97.66 97.66 12.41 4.667 587,064
HVFD 120.81 121.54 9.56 3.000 354,505
KNK 77.37 83.37 7.58 2.092 363,182
FFBS 118.69 118.69 24.82 2.051 123,553
HHFC 83.62 83.62 15.60 3.265 70,314
SCCB 98.80 98.80 29.30 3.636 43,939
FNGB 99.34 99.34 12.64 3.780 572,193
FFFL 109.67 111.11 11.63 4.444 779,620
JSBA 138.95 168.54 11.24 1.067 1,114,294
ETFS 83.29 83.29 16.35 1.270 114,961
INCB 96.22 96.22 15.01 2.373 90,614
CTZN 112.97 131.03 7.93 0.806 2,477,970
FCBF 94.50 94.50 18.50 3.404 250,658
LARK 86.90 86.90 15.12 2.735 198,535
NTMG 105.07 105.07 6.05 0.000 83,710
SECP 104.13 104.13 16.61 1.030 3,344,642
CNIT 118.30 122.96 8.64 2.310 639,812
FIBC 94.44 94.98 10.68 2.264 243,450
FBSI 91.26 91.46 15.70 1.212 140,022
SOPN 106.61 106.61 27.94 3.137 256,294
HARS 123.98 132.73 14.95 3.463 1,255,864
GLN 118.24 128.30 5.37 0.000 14,367,978
SBCN 88.67 88.67 11.64 3.871 197,137
CARV 57.87 60.85 5.58 0.000 363,225
EFBI 95.90 96.09 14.95 0.000 207,680
HRBF 83.12 83.12 15.81 3.048 154,218
GTFN 142.65 NA 16.19 1.753 2,477,204
MFFC 103.96 103.96 20.77 3.097 171,708
MFBC 76.33 76.33 14.74 0.000 200,895
BRFC 99.50 99.50 28.02 2.286 56,166
SMBC 94.09 94.09 15.67 3.448 159,470
</TABLE>
<TABLE>
<CAPTION>
Tangible Return on ROACE
Equity/ Equity/ Core Avg Assets Before
Assets Tang Assets EPS Before Extra Extra Merger
(%) (%) ($) (%) (%) Target?
Ticker Mst RctQ Mst RctQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C>
FBCI 12.05 12.01 0.88 0.77 5.56 N
LBCI 9.53 9.50 1.30 0.56 5.49 N
IBSF 20.40 20.40 0.77 1.11 5.16 N
LFED 16.53 16.53 0.80 1.03 6.37 N
GLBK 16.31 16.31 0.95 0.78 4.98 N
QCBC 9.88 9.83 0.80 0.50 4.90 N
CMSV 12.71 12.71 0.83 0.82 6.32 N
HVFD 7.91 7.87 0.99 0.58 7.13 N
KNK 9.80 9.15 1.05 0.50 4.53 N
FFBS 19.56 19.56 1.07 1.32 6.50 N
HHFC 18.65 18.65 0.67 0.88 4.75 N
SCCB 29.65 29.65 0.90 1.50 4.95 N
FNGB 12.73 12.73 0.86 0.84 6.53 N
FFFL 10.42 10.30 0.73 0.65 6.22 N
JSBA 7.28 6.08 1.62 0.62 8.90 N
ETFS 19.63 19.63 0.85 0.89 4.58 N
INCB 15.60 15.60 0.79 0.77 4.97 N
CTZN 7.02 6.11 1.84 0.44 6.21 N
FCBF 19.58 19.58 0.93 0.99 5.01 N
LARK 17.40 17.40 0.77 0.88 5.04 N
NTMG 6.30 6.30 0.38 0.61 10.53 N
SECP 16.88 16.88 3.02 0.89 5.09 N
CNIT 7.30 7.05 1.78 0.41 5.56 N
FIBC 11.31 11.25 0.68 0.61 4.70 N
FBSI 17.21 17.18 0.84 0.80 4.32 N
SOPN 26.21 26.21 0.97 1.48 5.68 N
HARS 12.06 11.36 0.84 0.81 6.34 N
GLN 6.55 6.16 0.87 0.23 2.51 N
SBCN 13.01 13.01 0.77 0.39 2.95 N
CARV 9.63 9.20 0.43 0.20 2.06 N
EFBI 15.58 15.55 0.69 1.12 5.38 N
HRBF 19.03 19.03 0.61 0.82 3.77 N
GTFN 11.35 NA 1.27 1.00 8.18 N
MFFC 19.98 19.98 0.70 1.13 4.88 N
MFBC 19.31 19.31 0.64 0.69 3.40 N
BRFC 28.15 28.15 0.62 1.31 4.32 N
SMBC 16.66 16.66 0.64 0.75 4.20 N
</TABLE>
<PAGE>
FERGUSON & CO., LLP
- -------------------
Exhibit VI - Selected Publicly Traded Thrifts
Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Tangible Return on ROACE
Current Current Current Total Equity/ Equity/ Core Avg Assets Before
Price/ Price/ Tang Price/ Dividend Assets Assets Tang Assets EPS Before Extra Extra Merger
Book Value Book Value Assets Yield ($000) (%) (%) ($) (%) (%) Target?
Ticker (%) (%) (%) (%) Mst RctQ Mst RctQ Mst RctQ LTM LTM LTM (Y/N)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BKC 131.34 138.66 12.30 5.307 476,152 9.36 8.91 1.13 0.97 10.71 N
PMFI 95.18 95.18 9.17 1.765 374,039 9.64 9.64 0.74 0.41 4.09 N
OFCP 112.69 112.77 24.21 1.969 370,305 21.48 21.48 0.70 1.08 4.62 N
FSFC 109.01 109.01 21.39 2.560 359,481 19.62 19.62 0.80 0.90 4.59 N
WAYN 138.89 138.89 12.71 4.000 245,892 9.16 9.16 0.92 0.56 6.13 N
HMCI 96.47 96.47 5.85 0.000 341,742 6.07 6.07 0.74 0.37 6.28 N
FED 87.73 89.29 4.11 0.000 4,165,825 4.69 4.61 0.66 0.18 3.94 N
MBLF 117.40 117.40 16.87 1.684 197,259 14.37 14.37 0.96 0.72 4.95 N
Maximum 234.270 244.980 29.300 7.143 43,762,730.000 29.650 29.650 5.610 2.310 41.460
Minimum 57.870 60.850 3.220 0.000 35,903.000 3.310 2.710 0.100 0.180 2.060
Average 113.776 117.488 11.339 2.204 1,652,243,427 10.401 10.253 1.476 0.964 10.320
Median 108.770 112.150 10.260 2.220 452,455.000 8.860 8.595 1.390 0.920 9.585
</TABLE>
Source: SNL and F&C calculations.
16
<PAGE>
FERGUSON & CO., LLP Exhibit VI-Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
PKPS 2.18 20.83 0.06 0.38 4.42
NMSB 2.85 13.22 0.13 0.83 7.20
EQSB 0.85 9.22 0.61 0.63 12.02
SISB NA 10.04 0.42 0.87 11.61
WSFS 3.18 9.08 0.21 0.97 16.29
BFSI 1.48 5.70 1.70 2.12 26.73
LSBX 1.98 6.12 0.24 1.25 16.23
IPSW 2.23 6.25 0.36 1.38 22.02
KSBK NA 6.57 0.79 0.89 13.10
WRNB 2.05 7.48 0.38 1.85 20.68
SFSL 0.46 8.16 0.36 1.29 14.87
CBCO NA 10.69 0.38 0.96 10.46
PCCI 6.49 8.20 0.24 1.03 12.83
DNFC 0.59 7.24 0.44 1.16 20.81
HPBC 0.00 9.21 0.38 1.69 15.19
HOMF 0.50 8.56 0.73 1.29 15.93
NASB 3.43 9.76 0.77 1.08 14.46
IROQ 1.21 9.54 0.38 0.90 13.01
FMCO NA 9.46 0.39 0.80 12.08
FFES 0.72 9.94 0.44 0.52 7.77
MAFB 0.40 8.99 0.73 0.87 15.36
GROV 0.75 8.58 0.75 0.89 14.19
COFD 0.57 9.00 0.67 1.06 15.34
FSBX 1.92 9.09 0.11 1.24 16.42
FSPG 0.75 9.01 0.52 1.00 15.20
WLDN 0.73 9.13 0.52 1.12 12.07
CBSA 0.67 8.15 0.56 0.40 12.10
ANDB 1.92 9.81 0.57 0.92 12.06
MSEA NA 6.84 0.53 1.03 15.43
DIBK 1.38 5.29 0.65 1.66 21.55
NFSL 0.67 10.71 0.42 1.87 16.31
FFRV 0.72 10.69 0.31 0.92 10.76
PHBK NA 9.66 0.54 1.20 14.04
VFFC 2.89 11.18 0.26 1.25 15.98
PSBK 1.06 9.66 0.71 1.02 11.12
AMFB 0.71 10.64 0.37 1.33 16.19
EBSI 0.49 8.38 0.44 1.06 15.74
</TABLE>
Source: SNL and F&C calculations.
17
<PAGE>
FERGUSON & CO., LLP Exhibit VI-Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
PFNC 1.33 173.50 0.01 0.84 15.69
FFED 0.09 11.67 0.30 1.30 26.35
HIFS 0.34 10.98 0.33 0.98 9.52
LARL 0.77 10.00 0.40 1.35 12.97
WAMU 0.51 9.91 0.70 1.08 15.70
FESX 0.76 12.36 0.22 0.84 11.46
MDBK 0.55 9.49 0.54 1.12 12.41
FFBZ 0.56 10.11 0.55 1.10 14.19
NYB 1.49 9.01 0.68 1.37 22.82
HSBK 0.27 8.02 0.46 0.67 9.93
CFB 1.02 8.80 1.09 1.00 16.84
EGFC 1.27 10.91 0.53 0.95 12.56
CAPS 0.09 10.11 0.47 0.99 9.23
FFHC 0.52 10.49 0.56 1.28 17.71
AFFFZ 0.58 8.93 0.77 0.87 13.32
FBHC 1.37 10.76 0.43 0.80 10.82
PVSA 0.18 9.96 0.69 1.32 18.51
MASB 0.33 10.92 0.75 1.04 9.74
BKCO 1.63 10.63 0.40 0.90 9.20
PLE 0.27 9.52 0.43 0.87 11.32
PTRS 2.21 9.59 0.43 0.83 8.53
UFRM 0.08 9.38 0.21 1.08 13.68
HARL 0.00 10.76 0.43 0.78 11.03
RFED NA 10.46 0.46 0.93 18.99
CTBK 1.01 9.72 0.36 0.76 10.52
FFWC 0.08 9.95 0.49 1.18 10.51
FMSB NA 11.21 0.34 1.02 15.45
NSBK NA 10.57 0.81 1.09 14.18
PULS 1.20 11.03 0.34 1.19 9.97
RCSB 0.72 11.08 0.53 1.00 11.20
PVFC 1.23 11.36 0.44 1.19 18.34
SWCB 1.38 10.37 0.47 0.99 12.25
WBST 1.44 11.56 0.60 0.63 10.89
MWBI 0.27 10.96 0.61 0.69 9.55
BKCT 1.86 12.07 0.44 0.94 8.45
PBNB 0.44 10.68 0.48 0.88 7.92
HRZB 0.00 10.78 0.29 1.57 9.73
</TABLE>
Source: SNL and F&C calculations. 18
<PAGE>
FERGUSON & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
HAVN NA 9.68 0.62 0.77 11.90
SFB 0.22 11.13 0.89 0.95 13.89
FFSL 0.71 10.79 0.42 0.97 7.69
SVRN NA 10.70 0.26 0.78 16.81
CAL 1.61 9.71 0.46 0.83 14.65
NWEQ 0.52 14.71 0.17 0.84 5.67
MSBB NA 11.06 0.39 0.53 5.62
PBCI 2.45 13.01 0.37 1.35 8.48
PFDC 0.28 10.97 0.45 1.53 10.03
COFI NA 10.50 0.83 1.19 17.18
PFSB 0.93 10.30 0.37 0.83 8.15
WFSL NA 10.29 0.51 1.79 14.56
FMLY 1.19 11.04 0.47 0.95 12.22
IFSL 1.27 11.02 0.40 1.03 10.64
GDW 1.37 10.70 1.23 0.86 13.09
PFSL 0.20 12.10 0.31 0.56 9.43
MERI NA 12.89 0.64 1.02 13.73
CBNH 0.44 12.15 0.36 1.00 13.55
FFWD 0.04 12.17 0.38 1.16 8.12
BANC 1.28 17.12 0.23 0.93 9.27
GBCI 0.03 12.12 0.49 1.52 15.66
FFPC 0.82 10.12 0.21 0.99 14.47
KSAV 0.73 11.98 0.36 1.12 7.02
CAFI 0.31 12.67 0.36 1.10 13.92
QCSB NA 12.02 0.91 1.68 9.75
CVAL 1.08 12.33 0.37 0.90 9.77
FOBC 0.14 12.60 0.30 0.96 7.69
PSAB NA 11.38 0.39 1.05 11.28
WSB NA 11.36 0.11 0.95 12.31
GPT 2.94 12.03 0.60 0.75 7.10
FSFI 3.88 15.00 0.20 0.98 14.23
IWBK 0.59 11.26 0.53 1.18 16.81
LOAN 0.15 17.58 0.16 1.12 12.44
MCBN 1.19 14.68 0.33 0.63 7.17
PBKB 1.64 11.01 0.21 0.84 13.06
WVFC 0.75 9.49 0.56 2.12 14.03
FGHC 1.42 14.58 0.12 0.79 9.24
</TABLE>
Source: SNL and F&C calculations.
19
<PAGE>
FERGUS0N & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
MIFC NA 12.98 0.13 0.80 8.66
ABCW 0.70 13.19 0.63 0.84 11.62
CFFC 0.27 12.50 0.42 1.37 10.20
CIBI 0.73 13.15 0.29 0.93 6.57
FSLA 1.02 12.93 0.29 0.92 9.72
NSSB 1.72 13.41 0.24 0.79 7.01
RARB 0.35 11.53 0.45 0.87 11.19
UBMT 0.43 10.37 0.44 1.96 8.75
MGNL NA 12.08 0.75 1.58 15.73
ROSE NA 11.04 0.60 0.97 14.86
ASFC NA 13.31 1.00 0.88 10.12
FFCH 1.47 11.51 0.44 0.72 10.77
GFSB NA 10.87 0.46 1.19 9.91
GSLC NA 19.38 0.10 0.60 9.09
FSBC 1.44 157.75 0.01 0.15 3.07
GSBC 2.34 12.85 0.53 1.54 15.28
CBCI 1.23 12.17 0.57 1.27 7.48
GWF 1.81 12.50 0.46 0.65 10.29
ALBK NA 12.62 0.53 0.92 9.56
NHTB 1.11 9.31 0.27 0.68 8.84
FLFC 1.80 12.36 0.44 1.03 14.03
HARB 0.54 13.07 0.55 1.19 13.47
DSBC 1.77 11.91 0.64 0.70 10.36
RELY NA 12.60 0.30 0.85 8.02
SSBK NA 13.26 0.41 0.96 11.41
SPBC 0.63 14.86 0.41 0.85 9.04
TCB 0.92 13.20 0.67 1.48 19.67
YFED 1.36 8.80 0.49 1.29 15.29
WFCO 0.49 14.06 0.24 0.92 11.95
MLFB 0.64 13.71 0.44 0.77 8.30
PWBC 0.13 12.26 0.26 0.64 7.80
FFHS 0.43 14.97 0.24 0.57 5.95
NSSY 3.36 NM (0.05) 0.71 8.31
PBCT 1.66 15.18 0.35 1.21 15.07
BFSB 0.00 12.41 0.35 1.37 8.45
WCBI 0.58 14.15 0.51 1.26 8.03
FSBI 0.52 12.87 0.34 0.58 7.36
</TABLE>
Source: SNL and F&C calculations.
20
<PAGE>
FERGUSON & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
CFSB 0.09 14.06 0.36 0.90 10.79
FFBI 0.44 19.69 0.20 0.65 5.93
ASBI 0.47 13.00 0.25 0.97 7.85
FFPB 0.74 12.22 0.44 0.81 9.46
SWBI 0.25 15.70 0.43 0.99 7.67
FFFC 0.52 12.81 0.61 1.32 7.43
BSBC 2.31 12.50 0.06 0.90 10.26
THBC NA 12.96 0.27 1.42 6.41
IFSB 2.77 27.68 0.07 0.43 6.66
MFLR 1.57 13.92 0.22 0.91 8.87
DSL NA 12.57 0.43 0.91 10.95
FISB 1.70 14.88 0.42 1.21 13.72
HMNF 0.14 14.66 0.26 1.18 6.88
MCBS 0.17 12.08 0.37 1.41 10.45
TWIN 0.42 12.90 0.31 1.18 8.38
SFSB 0.25 15.28 0.27 0.46 6.36
CASH 0.28 13.84 0.42 1.12 8.10
EBCP 1.81 14.63 0.41 0.73 9.56
POBS 0.43 17.76 0.19 2.67 10.83
SHEN 0.48 14.64 0.35 1.10 7.95
LIFB NA 14.25 0.25 0.90 6.58
SOSA 9.74 7.50 0.05 0.60 11.11
STFR 0.52 13.96 0.47 1.36 11.77
DME NA 11.57 0.27 0.54 10.93
CJFC 1.91 15.08 0.46 1.15 9.86
SMFC 0.00 12.30 0.32 0.86 7.02
PSSB 3.35 13.28 0.16 0.61 10.69
MORG 0.06 16.18 0.17 0.88 5.79
FFSW 0.15 12.50 0.48 1.07 NA
FLAG 1.86 19.85 0.17 0.76 8.11
CFCX 2.61 23.96 0.18 0.61 9.87
MFSL NA 14.60 0.52 0.59 7.28
FCIT 3.39 13.34 0.37 0.78 12.29
FFLC 0.08 14.31 0.31 0.99 5.82
FFFG 3.62 13.13 0.05 0.69 10.59
HNFC 0.13 15.44 0.34 0.71 8.94
CFX 1.00 14.81 0.23 0.98 9.62
</TABLE>
Source: SNL and F&C calculations.
21
<PAGE>
FERGUSON & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
OHSL 0.03 15.28 0.36 0.89 7.05
THRD 0.35 13.08 0.27 1.08 7.53
STSA 0.63 13.75 0.25 0.50 8.61
FFML 0.57 12.95 0.42 1.29 23.78
SFBM 0.11 17.50 0.30 0.71 8.32
LVSB 1.37 18.87 0.26 1.38 12.26
FTFC NA 17.54 0.31 0.89 12.58
STND NA 15.49 0.24 0.92 7.16
FFSX NA 14.29 0.42 0.69 8.31
FFKY 0.06 15.41 0.58 1.63 11.40
JSBF NA 15.68 0.54 1.54 6.97
NWSB NA 14.79 0.41 1.07 9.75
AADV 0.50 17.35 0.49 0.94 9.70
SFFC NA 15.51 0.27 1.18 5.91
HALL 0.00 14.42 0.26 0.55 6.46
LISB NA 17.79 0.39 0.92 8.46
RVSB 0.00 15.74 0.27 1.20 11.07
HFFC 0.67 11.91 0.32 0.85 9.53
BTHL 2.01 13.59 0.23 0.84 9.87
GFCO 0.44 16.99 0.32 0.50 5.23
CFCP 0.19 16.94 0.31 1.02 16.60
WSTR 0.02 14.50 0.25 0.77 5.73
CENF 0.98 12.78 0.45 0.43 9.12
HOFL 0.06 17.34 0.20 1.66 6.49
FFYF 0.88 15.46 0.37 1.10 6.03
GRTR NA 16.36 0.17 0.65 6.62
CNSK 1.59 16.56 0.20 0.79 11.29
HZFS 1.69 13.44 0.30 0.82 6.73
CMSB 0.51 23.10 0.23 0.73 8.04
MWFD 0.16 14.25 0.50 1.47 15.55
MARN 0.93 17.56 0.29 1.37 5.68
FFEC 0.12 16.67 0.21 0.89 5.69
PALM 4.25 18.84 0.17 0.68 8.59
CSA 1.62 15.56 0.50 0.46 9.02
LBFI 0.57 17.05 0.22 1.02 5.63
CEBK 2.31 14.01 0.29 0.75 7.68
TRIC 0.34 18.23 0.24 0.98 4.82
</TABLE>
Source: SNL and F&C calculations.
22
<PAGE>
FERGUSON & CO., LLP Exhibit VI-Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
FBCI NA 15.02 0.26 0.77 5.87
LBCI 0.12 14.82 0.39 0.63 6.60
IBSF 0.07 20.22 0.17 0.98 4.69
LFED 0.00 17.97 0.20 1.04 6.36
GLBK 0.00 30.58 0.14 0.87 5.47
QCBC 2.31 15.70 0.23 0.54 5.46
CMSV 0.73 17.86 0.21 0.73 5.71
HVFD 0.81 15.00 0.30 0.79 9.86
KNK 0.20 18.39 0.26 0.44 4.39
FFBS 0.43 17.41 0.28 1.43 7.13
HHFC 0.18 20.42 0.15 0.73 3.97
SCCB NA 27.50 0.15 1.00 3.34
FNGB 0.13 18.04 0.22 0.77 5.99
FFFL NA 18.75 0.18 0.62 6.03
JSBA NA 19.23 0.39 0.71 9.87
ETFS 0.45 23.16 0.17 0.74 3.81
INCB NA 24.58 0.15 0.58 3.78
CTZN 0.84 12.78 0.68 0.68 9.41
FCBF 0.09 16.95 0.26 1.11 5.68
LARK 0.06 19.24 0.19 0.86 4.98
NTMG 1.65 25.89 0.07 0.65 11.13
SECP 0.12 17.34 0.84 0.84 4.92
CNIT 0.43 26.23 0.33 0.20 2.80
FIBC 2.78 12.74 0.26 0.84 7.08
FBSI 0.03 19.64 0.21 0.76 4.37
SOPN 0.03 19.13 0.25 1.52 5.83
HARS 0.72 24.63 0.17 0.60 4.99
GLN 2.08 23.03 0.19 0.56 8.87
SBCN 0.20 32.29 0.12 (0.41) (3.08)
CARV 0.86 31.25 0.07 0.15 1.60
EFBI 0.01 32.39 0.11 1.23 7.06
HRBF 0.06 36.46 0.09 0.44 2.18
GTFN 0.44 20.13 0.34 1.06 9.02
MFFC 0.20 25.83 0.15 1.00 4.75
MFBC NA 18.75 0.19 0.82 4.09
BRFC 0.00 23.33 0.15 1.25 4.24
SMBC NA 21.32 0.17 0.78 4.51
</TABLE>
Source: SNL and F&C calculations.
23
<PAGE>
FERGUSON & CO., LLP Exhibit VI - Selected Publicly Traded Thrifts
- ------------------- Financial Data as of April 30, 1996
<TABLE>
<CAPTION>
Return on ROACE
NPAs/ Price/ Core Avg Assets Before
Assets Core EPS Before Extra Extra
(%) EPS ($) (%) (%)
Ticker Mst RctQ (x) Mst RctQ Mst RctQ Mst RctQ
<S> <C> <C> <C> <C> <C>
BKC 3.33 NM 0.02 1.20 13.08
PMFI 0.52 20.24 0.21 0.46 4.75
OFCP 0.10 23.90 0.17 1.01 4.48
FSFC NA 22.32 0.21 0.92 4.66
WAYN 1.08 26.19 0.21 0.55 5.99
HMCI NA 36.98 0.12 0.42 6.92
FED 2.56 13.00 0.31 0.32 6.88
MBLF 0.38 28.27 0.21 0.61 4.22
Maximum 9.740 173.500 1.700 2.670 26.730
Minimum 0.000 5.290 (0.050) (0.410) (3.080)
Average 1.007 15.217 0.376 0.963 10.243
Median 0.670 12.890 0.360 0.920 9.735
</TABLE>
Source: SNL and F&C calculations.
24
<PAGE>
EXHIBIT VII
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Home Savings Bank of Albemarle, S.S.B.
Albemarle, North Carolina
We have audited the accompanying statements of financial condition of Home
Savings Bank of Albemarle, S.S.B. as of September 30, 1995 and 1994, and the
related statements of income, equity and cash flows for each of the years in the
three year period ended September 30, 1995. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Home Savings Bank of Albemarle,
S.S.B. as of September 30, 1995 and 1994, and the results of its operations and
its cash flows for each of the years in the three year period ended September
30, 1995, in conformity with generally accepted accounting principles.
As discussed in Notes 3 and 11 to the financial statements, the Bank changed its
methods of accounting for investment securities and income taxes in 1994.
Charlotte, North Carolina
October 25, 1995
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
STATEMENTS OF FINANCIAL CONDITION
March 31, 1996, September 30, 1995 and 1994
<TABLE>
<CAPTION>
March 31, September 30,
ASSETS 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
(Unaudited)
Cash and cash equivalents:
Noninterest-bearing deposits $ 8,145,000 $ 2,872,000 $ 2,796,000
(Note 2)
Interest-bearing deposits 11,931,000 8,622,000 3,853,000
Securities held to maturity,
fair value 1996, $6,058,000;
1995, $4,642,000;
1994, $5,271,000 (Note 4) 5,987,000 4,529,000 5,325,000
Securities available for
sale (Note 3) 29,943,000 30,974,000 25,076,000
Federal Home Loan Bank stock
(Note 4) 1,346,000 1,346,000 1,346,000
Loans receivable, net (Note 5) 106,710,000 108,597,000 106,844,000
Real estate acquired in
settlement of loans 73,000 135,000 176,000
Accrued interest receivable
(Note 6) 1,151,000 1,150,000 1,027,000
Office properties and
equipment, net (Note 7) 1,248,000 1,294,000 1,187,000
Prepaid expenses and other
assets (Note 8) 387,000 239,000 207,000
Income tax refund receivable 57,000 105,000
----------------------------------------------
$ 166,978,000 $ 159,863,000 $ 147,837,000
==============================================
LIABILITIES AND EQUITY
- ------------------------------------------------------------------------------
Liabilities:
Deposits (Note 9) $ 144,282,000 $ 137,647,000 $ 127,312,000
Advance payments by
borrowers for taxes
and insurance 305,000 97,000 474,000
Accounts payable and other
liabilities 1,043,000 968,000 591,000
Checks outstanding on
disbursement account 563,000 489,000 783,000
Income taxes payable - - 187,000
Deferred income taxes
(Note 11) 65,000 236,000 179,000
----------------------------------------------
Total liabilities 146,258,000 139,437,000 129,526,000
----------------------------------------------
Commitments (Notes 10 and 13)
Equity:
Retained earnings,
substantially restricted
(Notes 11 and 12) 20,691,000 20,392,000 18,531,000
Unrealized gain (loss) on
securities available for
sale, net of tax (Note 3) 29,000 34,000 (220,000)
----------------------------------------------
20,720,000 20,426,000 18,311,000
----------------------------------------------
$ 166,978,000 $ 159,863,000 $ 147,837,000
==============================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
STATEMENTS OF INCOME
Six Months Ended March 31, 1996 and 1995, and Years
Ended September 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
March 31,
1996 1995
- ------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans $ 4,844,000 $ 4,823,000
Mortgage-backed certificates 196,000 204,000
Securities 938,000 736,000
Other interest-bearing deposits 373,000 68,000
---------------------------------
6,351,000 5,831,000
Interest expense on deposits (Note 9) 3,831,000 2,532,000
---------------------------------
Net interest income 2,520,000 3,299,000
Provision for loan losses (Note 5) 300,000 -
---------------------------------
Net interest income
after provision for
loan losses 2,220,000 3,299,000
---------------------------------
Noninterest income 62,000 61,000
---------------------------------
Noninterest expenses:
Compensation and benefits (Note 10) 898,000 724,000
Occupancy 140,000 115,000
Federal insurance premium expense 155,000 142,000
Data processing 106,000 99,000
Pension liquidation expense (Note 8) - -
Contributions 191,000 24,000
Other 304,000 304,000
---------------------------------
1,794,000 1,408,000
---------------------------------
Income before income taxes 488,000 1,952,000
Income taxes (Note 11) 189,000 729,000
---------------------------------
Income before cumulative
effect of a change in
accounting principle 299,000 1,223,000
Cumulative effect on prior years of changing
to a different method of accounting for
income taxes (Note 11) - -
---------------------------------
Net Income $ 299,000 $ 1,223,000
=================================
</TABLE>
See Notes to Financial Statements.
F-1
<PAGE>
<TABLE>
<CAPTION>
September 30,
1995 1994 1993
---------------------------------------------
<S> <S> <C> <C>
Interest income:
Loans $ 9,731,000 $ 9,906,000 $ 10,877,000
Mortgage-backed certificates 394,000 469,000 636,000
Securities 1,585,000 1,222,000 1,334,000
Other interest-bearing deposits 270,000 397,000 197,000
---------------------------------------------
11,980,000 11,994,000 13,044,000
Interest expense on deposits (Note 9) 5,980,000 4,973,000 6,037,000
---------------------------------------------
Net interest income 6,000,000 7,021,000 7,007,000
Provision for loan losses (Note 5) - - -
---------------------------------------------
Net interest income
after provision for
loan losses 6,000,000 7,021,000 7,007,000
---------------------------------------------
Noninterest income 126,000 147,000 206,000
---------------------------------------------
Noninterest expenses:
Compensation and benefits (Note 10) 1,859,000 1,324,000 1,018,000
Occupancy 256,000 267,000 202,000
Federal insurance premium expense 295,000 318,000 290,000
Data processing 205,000 194,000 188,000
Pension liquidation expense (Note 8) - 493,000 33,000
Contributions 46,000 61,000 30,000
Other 549,000 500,000 383,000
---------------------------------------------
3,210,000 3,157,000 2,144,000
---------------------------------------------
Income before income taxes 2,916,000 4,011,000 5,069,000
Income taxes (Note 11) 1,055,000 1,498,000 1,765,000
---------------------------------------------
Income before cumulative
effect of a change in
accounting principle 1,861,000 2,513,000 3,304,000
Cumulative effect on prior years of changing
to a different method of accounting for
income taxes (Note 11) - 485,000 -
---------------------------------------------
$ 1,861,000 $ 2,028,000 $ 3,304,000
=============================================
</TABLE>
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
STATEMENTS OF EQUITY
For the Six Months Ended March 31, 1996, and Years Ended
September 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Retained
Earnings Unrealized
Substantially Gain(Loss) Total
Restricted on Securities Equity
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, September 30, 1992 $ 13,199,000 - 13,199,000
Net income 3,304,000 - 3,304,000
----------------------------------------------
Balance, September 30, 1993 16,503,000 - 16,503,000
Net income 2,028,000 - 2,028,000
Net unrealized loss on
securities available
for sale - (220,000) (220,000)
----------------------------------------------
Balance, September 30, 1994 18,531,000 (220,000) 18,311,000
Net income 1,861,000 1,861,000
Net change in unrealized gain
(loss) on securities available for sale - 254,000 254,000
----------------------------------------------
Balance, September 30, 1995 20,392,000 34,000 20,426,000
Net income 299,000 299,000
Net change in unrealized gain
(loss) on securities available for sale - (5,000) (5,000)
----------------------------------------------
Balance, March 31, 1996 $ 20,691,000 $ 29,000 $ 20,720,000
(Unaudited) ==============================================
</TABLE>
See Notes to Financial Statements.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
Statements of Cash Flows
Six Months Ended March 31, 1996 and 1995 and Years Ended September 30, 1995,
1994 and 1993
<TABLE>
<CAPTION>
March 31,
1996 1995
- -------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $ 299,000 $ 1,223,000
Adjustments to reconcile net income to
net cash provided by
operating activities:
Provision for loan losses 300,000 -
Net accretion of premiums and discounts
on securities (14,000) (10,000)
Amortization of deferred loan fees (68,000) (33,000)
FHLB stock dividends - -
Gain on recalled securities - -
Gain on sale of real estate acquired in
settlement of loans (12,000) (8,000)
Provision for depreciation 50,000 41,000
Deferred income taxes (172,000) 50,000
(Increase) decrease in assets:
Accrued interest receivable (1,000) (31,000)
Prepaid and other assets (148,000) (100,000)
Income tax refund receivable 48,000 -
Increase (decrease) in liabilities:
Accounts payable and other liabilities 75,000 (35,000)
Interest payable 27,000 21,000
Checks outstanding on disbursement
accounts 74,000 (503,000)
Income taxes payable - (192,000)
--------------------------------
Net cash provided by
operating activities 458,000 423,000
--------------------------------
Cash Flows from Investing Activities
Purchases of securities held to maturity (1,954,000)
Purchases of securities available for
sale (8,916,000) (2,008,000)
Proceeds from maturities of securities
available for sale 9,960,000 1,500,000
Proceeds from maturities and recalls of
securities held to maturity - -
Principal collected on securities held
to maturity 493,000 388,000
Loan originations and principal
payments on loans, net 1,673,000 (2,776,000)
Purchase of office properties and
equipment (4,000) (111,000)
Proceeds from sale of foreclosed real
estate 56,000 57,000
Investment reduction in foreclosed real
estate - -
--------------------------------
Net cash provided by (used in)
investing activities 1,308,000 (2,950,000)
--------------------------------
</TABLE>
See Notes to Financial Statements.
<PAGE>
Home Savings Bank of Albemarle, S.S.B.
Statements of Cash Flows
Six Months Ended March 31, 1996 and 1995 and Years Ended September 30, 1995,
1994 and 1993
<TABLE>
<CAPTION>
September 30,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income $ 1 ,861,000 $ 2,028,000 $ 3,304,000
Adjustments to reconcile net income to
net cash provided by
operating activities:
Provision for loan losses - - -
Net accretion of premiums and discounts
on securities (19,000) (9,000) (3,000)
Amortization of deferred loan fees (73,000) (137,000) (247,000)
FHLB stock dividends - (33,000) (75,000)
Gain on recalled securities - (4,000) (33,000)
Gain on sale of real estate acquired in
settlement of loans (3,000) (14,000) (41,000)
Provision for depreciation 104,000 83,000 59,000
Deferred income taxes (75,000) 372,000 23,000
(Increase) decrease in assets:
Accrued interest receivable (123,000) 111,000 101,000
Prepaid and other assets (32,000) 366,000 (195,000)
Income tax refund receivable (105,000) - 36,000
Increase (decrease) in liabilities:
Accounts payable and other liabilities 377,000 94,000 (16,000)
Interest payable 63,000 5,000 (4,000)
Checks outstanding on disbursement
accounts (294,000) 253,000 37,000
Income taxes payable (187,000) (22,000) 209,000
--------------------------------------------------------
Net cash provided by 1,494,000 3,093,000 3,155,000
operating activities --------------------------------------------------------
Cash Flows from Investing Activities
Purchases of securities held to maturity - (11,934,000) (10,972,000)
Purchases of securities available for
sale 11,987,000) - -
Proceeds from maturities of securities
available for sale 6,500,000 - -
Proceeds from maturities and recalls of
securities held to maturity - 5,500,000 10,400,000
Principal collected on securities held
to maturity 790,000 1,744,000 2,113,000
Loan originations and principal
payments on loans, net 1,751,000) 10,178,000 (3,786,000)
Purchase of office properties and
equipment (211,000) (241,000) (307,000)
Proceeds from sale of foreclosed real
estate 115,000 127,000 112,000
Investment reduction in foreclosed real
estate - - (15,000)
--------------------------------------------------------
Net cash provided by (used in)
investing activities (6,544,000) (5,374,000) (2,455,000)
</TABLE>
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
STATEMENTS OF CASH FLOWS (CONTINUED)
Six Months Ended March 31, 1996 and 1995 and Years Ended
September 30, 1995, 1994, and 1993
<TABLE>
<CAPTION>
March 31,
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited)
Cash Flows from Financing Activities
<S> <C> <C>
Net increase (decrease) in certificates of deposit, demand
deposits, NOW accounts and passbook savings accounts $ 6,608,000 $ 1,078,000
Net increase (decrease) in advance payments by borrowers for
taxes and insurance 208,000 (143,000)
-------------------------------------
Net cash provided by (used in) financing activities 6,816,000 935,000
-------------------------------------
Increase (decrease) in cash and cash equivalents 8,582,000 (1,592,000)
Cash and cash equivalents:
Beginning 11,494,000 6,649,000
-------------------------------------
Ending $ 20,076,000 $ 5,057,000
=====================================
Supplemental Schedule of Cash and Cash equivalents
Cash:
Interest-bearing deposits $ 11,931,000 $ 2,687,000
Noninterest-bearing deposits 8,145,000 2,370,000
-------------------------------------
$ 20,076,000 $ 5,057,000
=====================================
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest $ 3,804,000 $ 2,511,000
Income taxes 313,000 871,000
Supplemental Disclosures of Noncash Transactions
Transfer of loans to real estate acquired in settlement of loans 89,000 106,000
Loans originated to finance the sale of real estate acquired in
settlement of loans 107,000 63,000
Transfers from securities held to maturity to securities
available for sale - -
Net change in unrealized (gain) loss on securities available for
sale, net of deferred taxes (credits) (5,000) 60,000
</TABLE>
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
STATEMENTS OF CASH FLOWS (CONTINUED)
Six Months Ended March 31, 1996 and 1995 and Years Ended
September 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
September 30,
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
<S> <C> <C> <C>
Net increase (decrease) in certificates of deposit, demand
deposits, NOW accounts and passbook savings accounts $ 10,272,000 $ (12,377,000) $ 936,000
Net increase (decrease) in advance payments by borrowers for
taxes and insurance (377,000) (11,000) 37,000
------------------------------------------------
Net cash provided by (used in) financing activities 9,895,000 (12,388,000) 973,000
------------------------------------------------
Increase (decrease) in cash and cash equivalents 4,845,000 (3,921,000) 1,673,000
Cash and cash equivalents:
Beginning 6,649,000 10,570,000 8,897,000
------------------------------------------------
Ending $ 11,494,000 $ 6,649,000 $ 10,570,000
================================================
Supplemental Schedule of Cash and Cash equivalents
Cash:
Interest-bearing deposits $ 8,622,000 $ 3,853,000 $ 7,038,000
Noninterest-bearing deposits 2,872,000 2,796,000 3,532,000
------------------------------------------------
$ 11,494,000 $ 6,649,000 $ 10,570,000
================================================
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest $ 5,917,000 $ 4,969,000 $ 6,042,000
Income taxes 1,346,000 1,520,000 1,520,000
Supplemental Disclosures of Noncash Transactions
Transfer of loans to real estate acquired in settlement of loans 209,000 212,000 376,000
Loans originated to finance the sale of real estate acquired in
settlement of loans 138,000 42,000 282,000
Transfers from securities held to maturity to securities
available for sale - 25,420,000 -
Net change in unrealized (gain) loss on securities available for
sale, net of deferred taxes (credits) (254,000) 220,000 -
</TABLE>
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies
Nature of business: Home Savings Bank of Albemarle, S.S.B. (the "Bank") is
- -------------------
primarily engaged in the business of obtaining savings deposits and originating
single-family residential loans within its primary lending area, the Stanley
County, North Carolina area. The Bank's underwriting polices require such loans
to be made 80% loan-to-value based upon appraised values unless private mortgage
insurance is obtained. These loans are secured by the underlying properties.
Unaudited financial statements: The unaudited financial statements furnished
- -------------------------------
reflect all adjustments, consisting of normal recurring accruals, which are in
the opinion of management, necessary for a fair presentation of the financial
position as of March 31, 1996 and the results of operations and cash flows for
the six months ended March 31, 1996 and 1995. The results for the six month
periods are not necessarily indicative of the operating results of the Bank for
the entire year.
Basis of financial statement presentation and accounting estimates: The
- -------------------------------------------------------------------
financial statements have been prepared in conformity with generally accepted
accounting principles. In preparing the financial statements, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the statement of financial condition
and revenues and expenses for the period. Actual results could differ from
those estimates.
Cash and cash equivalents: For purposes of reporting the statements of cash
- --------------------------
flows, the Bank includes cash on hand and demand deposits at other financial
institutions as cash equivalents. From time to time, the Bank maintains
deposits with financial institutions which are in excess of the federally-
insured amounts.
Investment in debt securities and accounting change: The Bank has investments
- ----------------------------------------------------
in debt securities. Debt securities consist primarily of obligations of the U.
S. Government and federal agencies and mortgage-backed certificates.
The Bank adopted the provisions of Financial Accounting Standards Board (FASB)
Statement No. 115, Accounting for Certain Investments in Debt and Equity
-----------------------------------------------------
Securities, as of September 30, 1994. Statement 115 requires that management
- ----------
classify all securities as trading, available for sale, or held to maturity on
the date of adoption, and thereafter as individual investment securities are
acquired, and that the appropriateness of such classification be reassessed at
each statement of financial condition date. Since the Bank does not buy
investment securities in anticipation of short-term fluctuations in market
prices, none of the investment securities are classified as trading in
accordance with Statement 115. All securities have been classified as either
available-for-sale or held to maturity.
Securities available for sale: Securities classified as available for sale are
- ------------------------------
those securities that the Bank intends to hold for an indefinite period of time
but not necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Bank's assets
and liabilities, liquidity needs, regulatory capital considerations, and other
similar factors. Securities available for sale are carried at fair value.
Unrealized gains or losses are reported as increases or decreases in equity, net
of the related deferred tax effect. Realized gains or losses, determined on the
basis of the cost of specific securities sold, are included in income.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)
Securities held to maturity: Securities classified as held to maturity are
- ----------------------------
those securities the Bank has both the intent and ability to hold to maturity
regardless of changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed by the interest
method over their contractual lives. Based on the Bank's financial position and
liquidity, management believes the Bank has the ability to hold these securities
to maturity.
Investment in Federal Home Loan Bank stock: The Bank, as a member of the
- -------------------------------------------
Federal Home Loan Bank system, is required to maintain an investment in capital
stock of the Federal Home Loan Bank in an amount equal to the greater of 1% of
its outstanding home loans or 5% of advances from the FHLB. No ready market
exists for the Federal Home Loan Bank stock, and it has no quoted market value.
Loans receivable: Loans receivable are stated at unpaid principal balances,
- -----------------
less the allowance for loan losses, the undisbursed portion of construction
loans, and net deferred loan origination fees.
Allowance for loan losses: The allowance for loan losses is increased by
- --------------------------
charges to income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrowers' ability to pay, the estimated
value of any underlying collateral, and current economic conditions. While
management uses the best information to make evaluations, future adjustments may
be necessary, if economic or other conditions differ substantially from the
assumptions used.
The Bank adopted SFAS No. 114 Accounting by Creditors for Impairment of a Loan
------------------------------------------------
which was subsequently amended by SFAS No. 118 Accounting by Creditors for
---------------------------
Impairment of a Loan - Income Recognition and Disclosures on October 1, 1995.
- ---------------------------------------------------------
SFAS No. 114 requires that the Bank establish specific loan loss allowances on
impaired loans if it is doubtful that all principal and interest due according
to the loan terms will be collected. An allowance on an impaired loan is
required if the present value of the future cash flows discounted using the
loan's effective interest rate is less than the carrying value of the loan. An
impaired loan can also be valued based upon its fair value in the market place
or on the basis of its underlying collateral if the loan is collateral
dependent. If foreclosure is imminent, and the loan is collateral dependent,
the loan must be valued based upon the fair value of the underlying collateral.
The Statement does not allow previously issued financial statements to be
restated and its adoption had no effect on the Bank's 1996 financial statements.
Interest income: The Bank adopted SFAS No. 118 on October 1, 1995 which
- ----------------
requires the disclosure of the Bank's method of accounting for interest income
on impaired loans. The Bank continues to accrue interest on impaired loans,
including loans delinquent 90 days or more. At the time a loan becomes
nonperforming, an allowance for uncollected interest is established for all
uncollected interest. If and when management determines that the collectibility
of principal and interest is no longer in doubt, the loan is returned to
performing status.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANTIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)
Loan origination fees: Loan fees and certain direct loan origination costs are
- ----------------------
deferred, and the net fee or cost is recognized as an adjustment to interest
income using the interest method over the contractual life of the loans,
adjusted for actual prepayments.
Real estate acquired in settlement of loans: Real estate acquired in
- --------------------------------------------
settlement of loans is initially recorded at estimated fair value. Based on
periodic evaluations by management, the carrying values are reduced where they
exceed fair value minus estimated costs to sell. Costs relating to the
development and improvement of the property are capitalized, while holding costs
of the property are charged to expense in the period incurred.
Office properties and equipment: Office properties and equipment are stated at
- --------------------------------
cost less accumulated depreciation which is computed principally by the
straight-line method over the estimated useful life.
Defined benefit pension plan: The Bank provides a noncontributory pension plan
- -----------------------------
covering substantially all of the Bank's employees who are eligible as to age
and length of service. The Bank's funding policy is to make the maximum annual
contribution that is deductible for income tax purposes.
Income taxes: Effective October 1, 1993, the Bank adopted Financial Accounting
- -------------
Standards Board ("FASB") Statement No. 109, Accounting for Income Taxes. Under
----------------------------
this method, deferred taxes are provided on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment. Prior to October 1, 1993, deferred income tax expenses and credits
were recorded to reflect the tax consequences of timing differences between the
recording of income and expense for financial purposes of filing federal income
tax returns at income tax rates in effect when the difference arose. Reference
should also be made to Note 11 regarding a change in the method of accounting
for income taxes.
Off-statement of financial condition risk: The Bank is a party to financial
- ------------------------------------------
instruments with off-statement of financial condition risk such as commitments
to extend credit and lines of credit. Management assesses the risk related to
these instruments for potential losses on an ongoing basis.
Fair value of financial instruments: The estimated fair values required under
- ------------------------------------
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, have been
-----------------------------------------------------
determined by the Bank using available market information and appropriate
valuation methodologies; however, considerable judgment is required to develop
the estimates of fair value. Accordingly, the estimates presented for the fair
value of the Bank's financial instruments are not necessarily indicative of the
amounts the Bank could realize in a current market exchange. The use of
different market assumptions or estimation methodologies may have a material
effect on the estimated fair value amounts.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 1. Summary of Significant Accounting Policies (Continued)
The fair value estimates presented are based on pertinent information available
to management as of March 31, 1996 and September 30, 1995 and 1994. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since these dates and
therefore, current estimates of fair value may differ significantly from the
amounts presented in these financial statements.
Note 2. Cash
Noninterest-bearing cash amounting to approximately $16,000, $11,000 and $53,000
was held by a trustee at March 31, 1996 and September 30, 1995 and 1994,
respectively, and was required to be used to repay loan principal and interest
and taxes and insurance for the related loans due to the Federal National
Mortgage Association.
Note 3. Securities Available for Sale and Accounting Change
As discussed in Note 1, the Bank adopted FASB Statement No. 115 as of September
30, 1994. There was no effect on net income in 1994 from adopting FASB
Statement No. 115. The September 30, 1994 equity was decreased by $220,000 net
of $114,000 related deferred tax effect, to recognize the net unrealized holding
loss on securities available for sale at that date.
Under Statement 115, debt and equity securities "available for sale" are carried
at fair value with unrealized holding gains and losses excluded from earnings
and reported net of income taxes in a separate component of equity. Such
securities may be sold in response to certain conditions such as changes in
market interest rates, needs for liquidity, or changes in the availability of
and the yield on alternative investments, but are not bought and held
principally for the purpose of selling in the near term with the objective of
generating profits on short-term differences in price. Prior to the adoption of
Statement 115, these securities were reported as "held to maturity".
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Securities Available for Sale and Accounting Change (Continued)
Amortized cost and fair values of securities available for sale are summarized
as follows:
<TABLE>
<CAPTION>
March 31, 1996
----------------------------------------------------------
(Unaudited)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government and federal agencies
obligations $ 29,880,000 $ 112,000 $ (64,000) $ 29,928,000
Other security 15,000 - - 15,000
----------------------------------------------------------
$ 29,895,000 $ 112,000 $ (64,000) $ 29,943,000
==========================================================
September 30, 1995
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------------------------------------------------
U.S. Government and federal agencies
obligations $ 30,907,000 $ 110,000 $ (58,000) $ 30,959,000
Other security 15,000 - - 15,000
----------------------------------------------------------
$ 30,922,000 $ 110,000 $ (58,000) $ 30,974,000
==========================================================
September 30, 1994
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
----------------------------------------------------------
U.S. Government and federal agencies
obligations $ 25,395,000 $ 10,000 $ (344,000) $ 25,061,000
Other security 15,000 - - 15,000
----------------------------------------------------------
$ 25,410,000 $ 10,000 $ (344,000) $ 25,076,000
==========================================================
</TABLE>
The amortized cost and fair values of securities available for sale by
contractual maturity are shown below. The "other security" has no contractual
maturity.
<TABLE>
<CAPTION>
March 31, 1996 September 30, 1995
----------------------------------------------------------
(Unaudited)
Amortized Fair Amortized Fair
Cost Value Cost Value
----------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 9,987,000 $ 10,021,000 $ 12,959,000 $ 12,945,000
Due after one year through five years 19,893,000 19,907,000 17,948,000 18,014,000
----------------------------------------------------------
29,880,000 29,928,000 30,907,000 30,959,000
Other security 15,000 15,000 15,000 15,000
----------------------------------------------------------
$ 29,895,000 $ 29,943,000 $ 30,922,000 $ 30,974,000
==========================================================
</TABLE>
F-12
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
F-13
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 3. Securities Available for Sale and Accounting Change (Continued)
There are no sales of securities available for sale for the six months ended
March 31, 1996 and 1995 and for the years ended September 30, 1995, 1994, and
1993.
Note 4. Securities Held to Maturity
Under Statement No. 115, identification of securities as "held to maturity", a
more stringent definition than previously contemplated for securities held to
maturity, indicates that such securities will be held until their contractual
maturities, and will not be available to be sold even in response to certain
conditions such as changes in market interest rates, needs for liquidity, or
changes in the availability of and the yield on alternative investments.
Carrying amounts and fair values of securities being held to maturity are
summarized as follows:
<TABLE>
<CAPTION>
March 31, 1996
----------------------------------------------------------------------------------------------
(Unaudited)
Gross Gross
Principal Unamortized Unearned Amortized Unrealized Unrealized Fair
Balance Premiums (Discounts) Cost Gains (Losses) Value
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities
and related securities $ 5,998,000 $ 41,000 $ (52,000) $ 5,987,000 $ 159,000 $ (88,000) $ 6,058,000
==============================================================================================
September 30, 1995
----------------------------------------------------------------------------------------------
Gross Gross
Principal Unamortized Unearned Amortized Unrealized Unrealized Fair
Balance Premiums (Discounts) Costs Gains (Losses) Value
----------------------------------------------------------------------------------------------
Mortgage-backed securities
and related securities $ 4,530,000 $ 48,000 $ (49,000) $ 4,529,000 $ 116,000 $ (3,000) $ 4,642,000
==============================================================================================
September 30, 1994
----------------------------------------------------------------------------------------------
Gross Gross
Principal Unamortized Unearned Amortized Unrealized Unrealized Fair
Balance Premiums (Discounts) Costs Gains (Losses) Value
----------------------------------------------------------------------------------------------
Mortgage-backed securities
and related securities $ 5,320,000 $ 60,000 $ (55,000) $ 5,325,000 $ 51,000 $ (105,000) $ 5,271,000
==============================================================================================
</TABLE>
There were no sales of investment securities held to maturity during the six
months ended March 31, 1996 and 1995, and the years ended September 30, 1995,
1994 and 1993. Gross proceeds from maturities and recalled securities during
the six months ended March 31, 1996 and 1995, and the years ended September 30,
1995, 1994 and 1993 were $-0-, $-0-, $-0-, $5,500,000 and $10,400,000,
respectively. Gross realized gains were $-0-, $-0-, $-0-, $4,000 and $33,000 on
recalled securities during
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
the six months ended March 31, 1996 and 1995, and the years ended
September 30, 1995, 1994 and 1993, respectively.
The contractual maturities of securities held to maturity are not disclosed
because the actual maturities of mortgage-backed securities may differ from
contractual maturities because the mortgages underlying the securities may be
prepaid without a penalty.
F-15
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 4. Securities Held to Maturity (Continued)
The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required
to maintain an investment in capital stock of the Federal Home Loan Bank in an
amount equal to the greater of 1% of its outstanding home loans or 5% of
advances from the FHLB. No ready market exists for the Federal Home Loan Bank
stock, and it has no quoted market value. For presentation purposes, such stock
is assumed to have a fair value which is equal to cost.
Note 5. Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
March 31, September 30,
----------------------------------
1996 1995 1994
------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Principal balances:
First mortgage loans
(principally conventional):
Secured by one-to-four $ 90,274,000 $ 94,036,000 $ 91,674,000
family residences
Secured by other properties 10,172,000 8,743,000 9,025,000
Construction loans 5,973,000 5,368,000 6,015,000
Home equity and second
mortgage 3,766,000 3,875,000 4,056,000
------------------------------------------------
110,185,000 112,022,000 110,770,000
------------------------------------------------
Other loans 294,000 331,000 281,000
------------------------------------------------
Allowance for loan losses (427,000) (137,000) (140,000)
Undisbursed portion of
construction loans (2,797,000) (3,100,000) (3,602,000)
Net deferred loan
origination fees (545,000) (519,000) (465,000)
------------------------------------------------
(3,769,000) (3,756,000) (4,207,000)
------------------------------------------------
$ 106,710,000 $ 108,597,000 $ 106,844,000
================================================
</TABLE>
The following is an analysis of the allowance for loan losses:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, September 30,
--------------------------------------------------------------
1996 1995 1995 1994 1993
--------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning $ 137,000 $ 140,000 $ 140,000 $ 144,000 $ 144,000
Loans charged off (17,000) (3,000) (3,000) (4,000) (1,000)
Recoveries 7,000 - - - 1,000
Provision charged to operations 300,000 - - - -
--------------------------------------------------------------
Balance, ending $ 427,000 $ 137,000 $ 137,000 $ 140,000 $ 144,000
==============================================================
</TABLE>
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 5. Loans Receivable (Continued)
The Bank adopted SFAS No. 114 Accounting by Creditors for Impairment of a Loan
------------------------------------------------
on October 1, 1995, which requires that the Bank establish a specific allowance
on impaired loans. The Bank considers loans delinquent more than 90 days to be
impaired. Such loans amounted to approximately $702,000 at March 31, 1996 and
had an average outstanding balance of approximately $1,080,000 for the six
months ending March 31, 1996. These loans are primarily collateral dependent
and management has determined that the underlying collateral is in excess of the
carrying amounts. As a result, the Bank has determined that specific allowances
on these impaired loans is not required.
Nonperforming loans for which interest has been reduced totaled approximately
$702,000, $981,000 and $946,000 at March 31, 1996 and September 30, 1995 and
1994, respectively. The differences between interest income that would have
been recorded under the original terms of such loans and the interest income
actually recognized totaled ($11,000), $2,000, $7,000, $10,000 and $47,000 for
the six months ended March 31, 1996 and 1995, and for the years ended September
30, 1995, 1994 and 1993, respectively
Mortgage loans serviced for others consist of FNMA loans and are not included in
the accompanying statements of financial condition. The unpaid principal
balances of these loans totaled $846,000, $970,000 and $1,262,000 at March 31,
1996, and September 30, 1995 and 1994, respectively. Custodial escrow balances
maintained in connection with the foregoing loan servicing was approximately
$16,000, $11,000 and $53,000 at March 31, 1996 and September 30, 1995 and 1994,
respectively.
Officers and directors of the Bank were indebted to the Bank for loans made in
the ordinary course of business. The balances of such loans were $1,006,000,
$984,000 and $889,000 at March 31, 1996 and September 30, 1995 and 1994,
respectively.
Note 6. Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
March 31, September 30,
--------------------------
1996 1995 1994
----------------------------------------
(Unaudited)
<S> <C> <C> <C>
Securities $ 402,000 $ 410,000 $ 325,000
Mortgage-backed securities 48,000 40,000 45,000
Loans receivable 701,000 700,000 657,000
----------------------------------------
$ 1,151,000 $ 1,150,000 $ 1,027,000
========================================
</TABLE>
F-17
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 7. Office Properties and Equipment
Office properties and equipment consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
----------------------------
1996 1995 1994
----------------------------------------
(Unaudited)
<S> <C> <C> <C>
Land $ 138,000 $ 138,000 $ 138,000
Buildings and improvements 1,313,000 1,313,000 1,308,000
Furniture and equipment 622,000 615,000 454,000
Automobiles 45,000 45,000 -
----------------------------------------
2,118,000 2,111,000 1,900,000
Accumulated depreciation 870,000 817,000 713,000
----------------------------------------
$ 1,248,000 $ 1,294,000 $ 1,187,000
========================================
</TABLE>
Note 8. Employee Pension Plan
Previous to November 10, 1993, the Bank had a defined benefit pension plan
covering substantially all of its employees. The benefits were based on years
of service and the employee's expected compensation during the last five years
of employment. The Bank's funding policy was to contribute annually the maximum
amount that could be deducted for federal income tax purposes. On September 13,
1993, the Bank's board of directors approved the termination of the defined
benefit pension plan effective November 10, 1993. In the year ended September
30, 1994, all plan participants received a lump sum distribution from the Plan.
Total pension expense for the year ended September 30, 1994 was $493,000, which
included $491,000 related to the termination of the Plan. The expense is
attributed to changes in the actuarial assumptions such as lower retirement
ages, inclusion of value of early retirement subsidies and a decrease in
interest rates as compared to the prior years.
On October 1, 1994, the Bank established a new pension plan for its employees.
The new plan is a defined benefit plan covering substantially all of the Bank's
employees. The benefits are based on years of service and the employee's
expected compensation during five consecutive plan years within the last ten
plan years that produce the highest average. Total pension expense was $67,000,
$29,000 and $108,000 for the six months ended March 31, 1996 and 1995 and for
the year ended September 30, 1995, respectively, and is included in compensation
and benefits in the accompanying statements of income.
F-18
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 8. Employee Pension Plan (Continued)
The following table sets forth the Plan's funded status and amounts recognized
in the Bank's statement of financial condition as of March 31, 1996 and
September 30, 1995:
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
------------------------------------
(Unaudited)
<S> <C> <C>
Actuarial present value of benefit (obligations):
Accumulated benefit (obligation):
Vested $ (183,000) $ (90,000)
Nonvested (18,000) (24,000)
------------------------------------
(201,000) (144,000)
Effect of projected future compensation (466,000) (439,000)
------------------------------------
Projected benefit (obligation) for service rendered
to date (667,000) (553,000)
Plan assets at fair value; primarily cash and
short-term investments 226,000 84,000
------------------------------------
Projected benefit (obligation) in excess of plan
assets (441,000) (469,000)
Unrecognized prior service cost 455,000 547,000
Unrecognized net (gain)/loss 76,000 (73,000)
------------------------------------
Prepaid pension cost (included in prepaid and
other assets) $ 90,000 $ 5,000
------------------------------------
</TABLE>
The components of net pension expense as of March 31, 1996, September 30, 1995
and 1994 are as follows (The information is not available for the six months
ended March 31, 1995):
<TABLE>
<CAPTION>
Years Ended
Six Months Ended September 30,
March 31, -----------------------------
1996 1995 1994
-----------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 20,000 $ 33,000 $
Interest cost on projected benefit obligation 27,000 43,000 25,000
Actual return on plan assets (7,000) (2,000) (26,000)
Net amortization and deferral 27,000 34,000 3,000
-----------------------------------------------------
Net pension expense $ 67,000 $ 108,000 $ 2,000
=====================================================
</TABLE>
Assumptions used to develop the net periodic pension cost as of March 31, 1996
and September 30, 1995 were:
<TABLE>
<CAPTION>
<S> <C>
Discount rate 8.0%
Expected long-term rate of return on assets 8.0
Rate of increase in compensation levels 5.0
</TABLE>
<PAGE>
HOME AND FINANCIAL STATEMENTS
Note 9. Deposits
Deposits are summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Rate at March 31, September 30,
March 31, 1996 1995 1994
-----------------------------------------------------------------------------------------
1996 Amount Percent Amount Percent Amount Percent
----------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Demand and NOW accounts,
including noninterest
bearing accounts of
$723,000 at March 31,
1996,
$562,000 at September 30,
1995 and
$647,000 at September 31, 1994 2.26% $ 7,433,000 5.15% $ 6,893,000 5.01% $ 6,947,000 5.46%
Money market 2.99 7,529,000 5.22 7,809,000 5.67 12,164,000 9.55
Passbook savings 3.00 15,390,000 10.67 15,490,000 11.25 17,711,000 13.91
-----------------------------------------------------------------------------------------
30,352,000 21.04% 30,192,000 21.93% 36,822,000 28.92%
-----------------------------------------------------------------------------------------
Certificates of deposit:
2.00% to 3.99% 15,000 0.01% 15,000 0.01% 45,130,000 35.45%
4.00% to 5.99% 50,469,000 34.98 38,643,000 28.07 45,207,000 35.51
6.00% to 7.99% 63,244,000 43.83 68,622,000 49.86
8.00% to 9.99% 41,000 0.03
-----------------------------------------------------------------------------------------
6.09 113,728,000 78.82% 107,280,000 77.94% 90,378,000 70.99%
-----------------------------------------------------------------------------------------
Accrued interest payable 202,000 0.14% 175,000 0.13% 112,000 0.09%
-----------------------------------------------------------------------------------------
$ 144,282,000 100.00% $ 137,647,000 100.00% $ 127,312,000 100.00%
=========================================================================================
Weighted average cost of
savings deposits
5.40% 5.43% 3.67%
========== ========== ========
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $10,107,000, $10,838,000 and
$5,633,000 at March 31, 1996, and September 30, 1995 and 1994, respectively.
The aggregate amount of certificates of deposit by maturity with a minimum
denomination of $100,000 included in the above table is as follows:
<TABLE>
<CAPTION>
March 31,
1996
------------------------
Maturity Period: (Unaudited)
<S> <C>
Within 3 months or less $ 2,120,000
</TABLE>
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Over 3 montths through 6 months 2,490,000
Over 6 months through 12 months 1,915,000
Over 12 months 3,582,000
---------------
$ 10,107.000
===============
</TABLE>
F-21
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. Deposits (Continued)
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
March 31, September 30,
-------------------------------------------------------------------------
1996 1995 1995 1994 1993
-------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Passbook savings $ 231,000 $ 255,000 $ 492,000 $ 555,000 $ 553,000
NOW and money market 214,000 270,000 496,000 579,000 545,000
Certificates of deposit 3,386,000 2,007,000 4,992,000 3,839,000 4,939,000
-------------------------------------------------------------------------
$ 3,831,000 $ 2,532,000 $ 5,980,000 $ 4,973,000 $ 6,037,000
=========================================================================
</TABLE>
The Bank has pledged securities with a book value of $1,000,000 at March 31,
1996 as collateral for public deposits.
Eligible savings accounts are insured to $100,000 by the Savings Association
Insurance Fund (SAIF) which is administered by the Federal Deposit Insurance
Corporation (FDIC).
Note 10. Deferred Compensation Agreements
The Bank has entered into unfunded deferred compensation agreements providing
retirement and death benefits for six active and two retired directors and
supplemental retirement and death benefits income agreements for two executive
officers. Vested benefits under the deferred compensation agreements are
payable in monthly installments over 10 and 15 year periods for the supplemental
income agreements. The present value of the liability for the benefits is being
accrued over the vesting period per the underlying agreements. The total of the
deferred compensation expense and supplemental income agreement for the six
months ended March 31, 1996 and 1995, and for the years ended September 30,
1995, 1994, and 1993 amounted to approximately $111,000, $17,000, $379,000,
$121,000, and $-0-, respectively.
Note 11. Accounting Change and Income Tax Matters
Effective October 1, 1993, the Bank adopted FASB Statement No. 109, Accounting
----------
for Income Taxes. The adoption of Statement 109 changes the Bank's method of
- -----------------
accounting for income taxes from the deferred method to a liability method.
Under the deferred method, the Bank deferred the past tax effects of timing
differences between financial reporting and taxable income. As explained in
Note 1, the liability method requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of temporary differences
between the reported amounts of assets and liabilities and their tax bases.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11. Accounting Change and Income Tax Matters (Continued)
Under FASB No. 109, a net deferred tax liability has been provided for certain
increases in the Bank's tax bad debt reserves subsequent to September 30, 1988
in excess of recorded book loan loss allowances. At March 31, 1996, retained
earnings contain certain additions to bad debt reserves for income tax purposes
of approximately $2,870,000, the balance at September 30, 1988, for which no
deferred taxes have been provided because the Bank does not intend to use these
reserves for purposes other than to absorb losses.
If amounts which qualified as bad debt deductions are used for purposes other
than to absorb losses or adjustments arising from the carryback of net operating
losses, income taxes may be imposed at the then existing rates. The unrecorded
deferred income tax liability on the above amount was approximately $1,119,000
as of March 31, 1996.
The effect of the adjustments to the October 1, 1993 statement of financial
condition to adopt Statement 109 was $485,000. This amount is reported as the
effect of a change in accounting principle on the accompanying 1994 statement of
income.
The tax effects of temporary differences that gave rise to significant portions
of the net deferred tax liability in the statement of financial condition at
March 31, 1996, and September 30, 1995 and 1994 as adjusted for the adoption
of FASB Statement No. 109, were:
<TABLE>
<CAPTION>
March 31, September 30,
--------------------------------------
1996 1995 1994
--------------------------------------
Deferred tax liabilities: (Unaudited)
<S> <C> <C> <C>
FHLB stock dividends $ 231,000 $ 231,000 $ 215,000
Reserve for bad debts 402,000 412,000 416,000
Unrealized gain on securities available 19,000 18,000 -
for sale
Property and equipment 65,000 59,000 40,000
Other 35,000 9,000 -
----------------------------------------
Total 752,000 729,000 671,000
----------------------------------------
Deferred tax assets:
Net deferred loan fees and costs 115,000 80,000 113,000
Deferred compensation and supplemental
income 385,000 333,000 188,000
Reserve for uncollected interest 20,000 26,000 -
Unrealized loss on securities available
for sale - - 114,000
Allowance for loan losses 167,000 54,000 77,000
----------------------------------------
Total 687,000 493,000 492,000
----------------------------------------
Net deferred tax liability $ 65,000 $ 236,000 $ 179,000
========================================
</TABLE>
A valuation allowance was not recorded for deferred tax assets at March 31,
1996, September 30, 1995 or September 30, 1994.
F-23
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 11. Accounting Change and Income Tax Matters (Continued)
Income tax expense (credits) consist of the following:
<TABLE>
<CAPTION>
March 31, September 30,
--------------------------------------------------------------
1996 1995 1995 1994 1993
--------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current $ 361,000 679,000 $ 1,130,000 $ 1,611,000 1,742,000
Deferred (172,000) 50,000 (75,000) (113,000) 23,000
--------------------------------------------------------------
Total $ 189,000 729,000 $ 1,055,000 $ 1,498,000 1,765,000
==============================================================
</TABLE>
The following is a reconciliation of the federal income tax rate of 34% to the
effective tax rate:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
March 31, September 30,
-------------------------------------------
1996 1995 1995 1994 1993
-------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0% 34.0% 34.0%
Increase in taxes resulting from:
Tax bad debt deduction - - - - (2.9)
State income taxes, net of federal
benefit 4.7 3.3 2.2 3.3 3.7
-------------------------------------------
38.7% 37.3% 36.2% 37.3% 34.8%
===========================================
</TABLE>
Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to tax bad debt reserves established for the
purpose of absorbing losses. The applicable provisions of the law permit the
Bank, upon meeting certain critical tests, to deduct from taxable income an
allowance for bad debts based on the greater of 8% of taxable income before such
deduction or actual loss experience. The Bank has utilized the experience method
for the years ended September 30, 1995 and 1994 and the percentage of taxable
income method for the year ended September 30, 1993.
Note 12. Capital Requirements
The FDIC requires the Bank to have a minimum leverage ratio of Tier I Capital
(principally consisting of retained earnings and any future common stockholders'
equity, less any intangible assets) to all assets of at least 3%, provided that
it receives the highest rating during the examination process. For institutions
that receive less than the highest rating, the Tier I capital requirement is 1%
to 2% above the stated minimum. The FDIC also requires the Bank to have a ratio
of total capital to risk-weighted assets of 8%, of which at least 4% must be in
the form of Tier I capital. The Administrator requires a net worth equal to at
least 5% of total assets.
F-24
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 12. Capital Requirements (Continued)
At March 31, 1996, the Bank complied with all the capital requirements described
above as shown below:
<TABLE>
<CAPTION>
Leverage N. C.
Ratio of Tier I Savings
GAAP Tier I Risk-Adjusted Risk-Based Bank
Equity Capital Capital Capital Capital
---------------------------------------------------------------
(Dollars in Thousands)
(Unaudited)
<S> <C> <C> <C> <C> <C>
GAAP equity $ 20,720 $ 20,720 $ 20,720 $ 20,720 $ 20,720
=========
Supplemental capital items:
General valuation allowance - 427 427
Unrealized (gains) on
securities available for sale (29) (29) (29) (29)
----------------------------------------------------
Regulatory capital 20,691 20,691 21,118 21,118
Minimum capital requirement 6,679 2,726 5,452 8,349
----------------------------------------------------
Excess regulatory capital $ 14,012 $ 17,965 $ 15,666 $ 12,769
====================================================
Total assets at March 31, 1996 $ 166,978 $ 166,978
========== ==========
Risk-weighted assets at
March 31, 1996 $ 68,152 $ 68,152
==========================
Capital as a percentage of
assets:
Actual 12.39% 30.36% 30.99% 12.65%
Required 4.00 4.00 8.00 5.00
----------------------------------------------------
Excess 8.39% 26.36% 22.99% 7.65%
====================================================
</TABLE>
Note 13. Financial Instruments with Off-Statement of Financial Condition Risk
The Bank is a party to financial instruments with off-statement of financial
condition risk in the normal course of business to meet the financing needs of
it customers. These financial instruments include commitments to extend credit.
These instruments involve, to varying degrees, elements of credit and interest
rate risk in excess of the amount recognized in the statement of financial
condition. The contract or notional amounts of those instruments reflect the
extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual or notional amount of these instruments. The
Bank uses the same credit polices in making commitments and conditional
obligations as it does for on-statement of financial condition instruments.
F-25
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 13. Financial Instruments with Off-Statement of Financial
Condition Risk (Continued)
<TABLE>
<CAPTION>
March 31, 1996
-----------------------------
Fixed Rate Variable Rate
-----------------------------
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit, mortgage $ 1,311,000 $ -
loans
Undisbursed lines of credit - 2,814,000
-----------------------------
$ 1,311,000 $ 2,814,000
=============================
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and many
require payment of a fee. The total commitment amounts do not necessarily
represent future cash requirements, since some may expire without being drawn
upon. The Bank evaluates each customer's credit worthiness on a case-by-case
basis.
Note 14. Disclosures About Fair Value of Financial Instruments
The fair value of the Bank's cash and cash equivalents is estimated to be equal
to its recorded amount. For securities held to maturity and securities
available for sale, the fair value is estimated using quoted market values
obtained from independent pricing services. For Federal Home Loan Bank stock,
the fair value is the same as the recorded book value since the stock can be
redeemed at face value.
The fair value for all fixed rate loans has been estimated by discounting the
projected future cash flows using the rate at which similar loans would be made
to borrowers with similar credit ratings and for similar maturities. The
discount rate used has been adjusted by an estimated credit risk factor to
approximate the adjustment that would be applied in the marketplace for any
nonperforming loans. Certain prepayment assumptions have also been made
depending upon the original contractual lives of the loans. The fair value for
all adjustable rate loans has been estimated to be equal to their carrying
amounts because the repricing periods are relatively short-term in nature.
The fair value of deposits with no stated maturities, including checking
accounts and statement savings accounts, is estimated to be equal to the amount
payable on demand. The fair value of certificates of deposit is based upon the
discounted value of the contractual cash flows. The discount rates used in
these calculations approximate the current rates offered for deposits of similar
remaining maturities.
The fair values of checks outstanding on the disbursement account, accrued
interest receivable, accrued interest payable and advance payments to borrowers
for taxes and insurance are presumed to be their recorded book values.
The estimated fair value of commitments to extend credit is estimated using fees
currently charged for similar arrangements adjusted for changes in interest
rates and credit risk that has occurred subsequent to origination. Because the
Bank believes that the credit risk associated with available but undisbursed
commitments would essentially offset fees that could be recognized under similar
arrangements, and because the commitments are either short term in nature or
subject to immediate repricing, no fair value has been assigned to these off-
statement of financial condition commitments.
F-26
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 14. Disclosures About Fair Value of Financial Instruments (Continued)
The recorded book value and estimated fair value of the Bank's financial
instruments at March 31, 1996, September 30, 1995 and 1994 are summarized below:
<TABLE>
<CAPTION>
March 31, September 30,
----------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------------------------------------------------------------------------
Carrying Estimated Carrying Estimated Carrying Estimated
Values Fair Value Values Fair Value Values Fair Value
----------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Financial Assets:
Cash and cash equivalents $ 20,076,000 $ 20,076,000 $ 11,494,000 $ 11,494,000 $ 6,649,000 $ 6,649,000
Securities held to maturity 5,987,000 6,058,000 4,529,000 4,642,000 5,325,000 5,271,000
Securities available for sale 29,943,000 29,943,000 30,974,000 30,974,000 25,076,000 25,076,000
Federal Home Loan Bank
stock 1,346,000 1,346,000 1,346,000 1,346,000 1,346,000 1,346,000
Loans receivable, net 106,710,000 107,722,000 108,597,000 108,824,000 106,844,000 108,300,000
Accrued interest receivable 1,151,000 1,151,000 1,150,000 1,150,000 1,027,000 1,027,000
Financial Liabilities:
Savings deposits with no
stated maturities 30,352,000 30,352,000 30,192,000 30,192,000 36,822,000 36,822,000
Savings deposits with
stated maturities 113,728,000 114,440,000 107,280,000 107,644,000 90,378,000 89,875,000
Checks outstanding on
disbursement account 563,000 563,000 489,000 489,000 783,000 783,000
Accrued interest payable 202,000 202,000 175,000 175,000 112,000 112,000
Advance payments by
borrowers for taxes and
insurance 305,000 305,000 97,000 97,000 474,000 474,000
</TABLE>
Note 15. Dissolution of Subsidiary
Effective September 13, 1994, the Board of Directors approved the dissolution of
Stanly County Service Corporation, a wholly-owned subsidiary. The stock of the
corporation was canceled and the equity was distributed, in the form of
dividends, to the Bank. The assets acquired were recorded at the carrying value
to Stanly County Service Corporation. The subsidiary was inactive prior to
dissolution.
F-27
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 16. Subsequent Event - Plan of Conversion (Unaudited)
Pending the approval of the Board of Directors, the Bank will adopt a Plan of
Conversion (the Plan) under which the Bank will convert from a North Carolina
chartered mutual savings bank to a North Carolina chartered stock savings bank
and will become a wholly-owned subsidiary of a holding company formed in
connection with the conversion. The holding company will issue common stock to
be sold in the conversion and will use that portion of the net proceeds thereof
which it does not retain to purchase the capital stock of the Bank. The Plan is
subject to approval by regulatory authorities and the members of the Bank at a
special meeting.
At the time of the conversion, the Bank will establish a liquidation account in
the amount equal to its net worth as reflected in its latest statement of
financial condition used in its final conversion-offering circular. The
liquidation account will be maintained for the benefit of eligible deposit
account holders who continue to maintain their deposit accounts in the Bank
after conversion. Only in the event of a complete liquidation each deposit
account holder will be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then current adjusted subaccount
balance for deposit accounts then held before any liquidation distribution may
be made with respect to common stock. Dividends paid by the Bank subsequent to
the conversion cannot be paid from this liquidation account.
The Bank may not declare or pay a cash dividend on its common stock if its net
worth would thereby be reduced below either the aggregate amount then required
for the liquidation account or the minimum regulatory capital requirements
imposed by federal and state regulations. As a North Carolina-chartered stock
savings bank, the Bank may not declare or pay a cash dividend on its capital
stock if the effect of such transaction would be to reduce the net worth of the
Bank to an amount which is less than the minimum amount required by applicable
federal and state regulations. For a period of five years after its conversion
from mutual to stock form, the Bank must obtain written approval from the
Administrator of the North Carolina Savings Institutions Division before
declaring or paying a cash dividend on its capital stock in an amount in excess
of one-half of the greater of (i) the Banks net income for the most recent
fiscal year end, or (ii) the average of the Banks net income after dividends for
the most recent year end and not more than two of the immediately preceding
fiscal year ends.
If the conversion is ultimately successful, conversion costs will be accounted
for as a reduction of the stock proceeds. If the conversion is unsuccessful,
conversion costs will be charged to the Bank's operations. The Bank incurred
approximately $18,000 of conversion costs as of March 31, 1996, which have been
deferred and included in prepaid assets.
Note 17. Reclassification
Certain amounts in the September 30, 1995, 1994, and 1993 financial statements
have been reclassified to conform with March 31, 1996 presentation with no
effect on net income or retained earnings.
F-28
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 18. Future Reporting Requirements
The FASB has issued SFAS No. 123, Accounting for Stock-Based Compensation, which
the Bank has not been required to adopt as of March 31, 1996.
The Statement, which will be in effect for the Bank's fiscal year ending
September 30, 1997, will require that an entity account for stock based
compensation plans using a fair value based method which measures compensation
cost at the grant date based upon the value of the award, which is then
recognized over the service period, usually the vesting period. The accounting
requirements of the Statement apply to grants of awards entered into in fiscal
years that begin after December 15, 1995. The Statement allows entities to
continue to use APB Opinion No. 25 to measure compensation cost, but requires
that the proforma effects on net income and earnings per share be disclosed to
reflect the difference between the compensation cost, if any, from applying APB
Opinion No. 25 and the related cost measured by the fair value method defined in
the Statement. The Statement is not expected to have a material effect on the
Bank's financial statements because management is expected to elect to continue
to use the accounting and reporting permitted by APB Opinion No. 25 and will
disclose the differences, if any, as proforma effects in notes to the financial
statements of not utilizing the fair value method prescribed in SFAS No. 123.
F-29
<PAGE>
EXHIBIT VIII
<PAGE>
Exhibit VIII
Pro Forma Effect of Conversion Proceeds
At the Minimum of the Conversion Valuation Range
April 30, 1996
Home Savings, Albemarle, North Carolina
- --------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Conversion Proceeds
Pro Forma Market Value (Minimum) $ 28,900,000
Less: Estimated Expenses (1,097,000)
---------------
Net Conversion Proceeds $ 27,803,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 27,803,000
Less: ESOP Contributions (2,312,000)
MRP Contributions (1,156,000)
---------------
Net Conversion Proceeds after ESOP & MRP $ 24,335,000
Estimated Incremental Rate of Return(1) 3.47%
---------------
Estimated Additional Income $ 843,208
Less: ESOP Expense (145,656)
MRP Expense (145,656)
---------------
$ 551,896
===============
</TABLE>
3. Pro Forma Calculations
<TABLE>
<CAPTION>
Before Conversion After
Period Conversion Results Conversion
----------------------------------------------------
<S> <C> <C> <C>
a. Pro Forma Earnings
Twelve Months Ended
3/31/96 $ 1,197,000 $ 551,896 $ 1,748,896
b. Pro Forma Net Worth
3/31/96 $ 20,720,000 $ 24,335,000 $ 45,055,000
c. Pro Forma Net Assets
3/31/96 $ 166,978,000 $ 24,335,000 $ 191,313,000
</TABLE>
(1) Investment rate of 5.50%, subject to an effective tax rate of 37%.
1
<PAGE>
Exhibit VIII
Pro Forma Effect of Conversion Proceeds
At the Midpoint of the Conversion Valuation Range
April 30, 1996
Home Savings, Albemarle, North Carolina
- -------------------------------------------------------
1. Conversion Proceeds
Pro Forma Market Valuation (Midpoint) $ 34,000,000
Less: Estimated Expenses (1,200,000)
-----------------
Net Conversion Proceeds $ 32,800,000
2. Estimated Additional Income From Conversion
Proceeds
Net Conversion Proceeds $ 32,800,000
Less: ESOP Contributions (2,720,000)
MRP Contributions (1,360,000)
-----------------
Net Conversion Proceeds after ESOP & MRP $ 28,720,000
Estimated Incremental Rate of Return(1) 3.47%
-----------------
Estimated Additional Income $ 995,148
Less: ESOP Expense (171,360)
MRP Expense (171,360)
-----------------
$ 652,428
=================
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
---------------------------------------------
a. Pro Forma Earnings
Twelve Months Ended
3/31/96 $ 1,197,000 $ 652,428 $ 1,849,428
b. Pro Forma Net Worth
3/31/96 $ 20,720,000 $ 28,720,000 $ 49,440,000
c. Pro Forma Net Assets
3/31/96 $ 166,978,000 $ 28,720,000 $ 195,698,000
(1) Investment rate of 5.50%, subject to an effective tax rate of 37%.
2
<PAGE>
Exhibit VIII
Pro Forma Effect of Conversion Proceeds
At the Maximum of the Conversion Valuation Range
April 30, 1996
Home Savings, Albemarle, North Carolina
- -------------------------------------------------------------
1. Conversion Proceeds
Pro Forma Market Valuation (Maximum) $ 39,100,000
Less: Estimated Expenses (1,304,000)
--------------
Net Conversion Proceeds $ $37,796,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 37,796,000
Less: ESOP Contributions (3,128,000)
MRP Contributions (1,564,000)
--------------
Net Conversion Proceeds after ESOP & MRP $ 33,104,000
Estimated Incremental Rate of Return(1) 3.47%
--------------
Estimated Additional Income $ 1,147,054
Less: ESOP Expense (197,064)
MRP Expense (197,064)
--------------
$ 752,926
==============
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
---------------------------------------------
a. Pro Forma Earnings
Twelve Months Ended
3/31/96 $ 1,197,000 $ 752,926 $ 1,949,926
b. Pro Forma Net Worth
3/31/96 $ 20,720,000 $ 33,104,000 $ 53,824,000
c. Pro Forma Net Assets
3/31/96 $ 166,978,000 $ 33,104,000 $ 200,082,000
(1) Investment rate of 5.50%, subject to an effective tax rate of 37%.
3
<PAGE>
Exhibit VIII
Pro Forma Effect of Conversion Proceeds
At the SuperMax of the Conversion Valuation Range
April 30, 1996
Home Savings, Albemarle, North Carolina
- -------------------------------------------------------------
1. Conversion Proceeds
Pro Forma Market Valuation (Final) $ 44,965,000
Less: Estimated Expenses $ (1,423,000)
--------------
Net Conversion Proceeds $ 43,542,000
2. Estimated Additional Income From Conversion Proceeds
Net Conversion Proceeds $ 43,542,000
Less: ESOP Contributions $ (3,597,200)
MRP Contributions $ (1,798,600)
--------------
Net Conversion Proceeds after ESOP & MRP $ 38,146,200
Estimated Incremental Rate of Return(1) 3.47%
--------------
Estimated Additional Income $ 1,321,766
Less: ESOP Expense $ (226,624)
MRP Expense $ (226,624)
--------------
$ 868,519
--------------
3. Pro Forma Calculations
Before Conversion After
Period Conversion Results Conversion
--------------------------------------------
a. Pro Forma Earnings
Twelve Months Ended
3/31/96 $ 1,197,000 $ 868,519 $ 2,065,519
b. Pro Forma Net Worth
3/31/96 $ 20,720,000 $ 38,146,200 $ 58,866,200
c. Pro Forma Net Assets
3/31/96 $ 166,978,000 $ 38,146,200 $ 205,124,200
(1) Investment rate of 5.50%, subject to an effective tax rate of 37%.
4
<PAGE>
Exhibit VIII
Pro Forma Analysis Sheet
<TABLE>
<CAPTION>
Name of Association: Home Savings, Albemarle, North Carolina
Date of Letter to Assn: MAY 20, 1996
Date of Market Prices: April 30, 1996 Southeast Publicly All Publicly
Comparatives Held Thrifts Held Thrifts
------------ ------------ ------------
Symbols Value Mean Median Mean Median Mean Median
----------------- ---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Price-Earnings Ratio P/E
- --------------------
Last Twelve Months N/A
At Minimum of Range 16.52
At Midpoint of Range 18.38 13.88 13.37 14.30 13.64 13.92 13.44
At Maximum of Range 20.05
At SuperMax of Range 21.77
Price-Book Ratio P/B
- ----------------
Last Twelve Months N/A
At Minimum of Range 64.14%
At Midpoint of Range 68.77% 108.80. 101.55 121.93 116.84 113.78 108.77
At Maximum of Range 72.64%
At SuperMax of Range 76.39%
Price-Asset Ratio P/A
- -----------------
Last Twelve Months N/A
At Minimum of Range 15.11%
At Midpoint of Range 17.37% 11.63 11.12 13.38 11.39 11.34 10.26
At Maximum of Range 19.54%
At SuperMax of Range 21.92%
Twelve Mo. Earnings Base Y $ 1,197,000
Period Ended 3/31/96
Book Value B $ 20,720,000
As of 3/31/96
Total Assets A $ 166,978,000
As of 3/31/96
Return on Money(1) R 3.47%
Conversion Expense X $ 1,200,000
Underwriting Commission C 0.00%
Percentage Underwritten S 0.00%
Estimate Dividend
Dollar Amount DA $ -
Yield DY
ESOP Contributions P $ 2,720,000
MRP Contributions I $ 1,360,000
ESOP Annual Expense E $ 171,360
MRP Annual Contributions M $ 171,360
Cost of ESOP Borrowings F 0.00%
(1) Investment rate of 5.50%, subject to an effective tax rate of 37%.
</TABLE>
6
<PAGE>
Exhibit VIII
Pro Forma Analysis Sheet
Calculation of Estimated Value (V) at Midpoint Value
<TABLE>
<CAPTION>
<S> <C> <C>
1. V= P/A(A-X-P-I) $ 34,000,000
------------------------
1-P/A(1-(CxS))
2. V= P/B(B-X-P-I) $ 34,000,000
------------------------
1-P/B(1-(CxX))
3. V= P/E(Y-R(X+P+I)-(E+M+ST)) $ 34,000,000
--------------------------------
1-P/E(R(1-(CxX))
</TABLE>
<TABLE>
<CAPTION>
Value
Estimated Value Per Share Total Shares Date
--------------------- ------------ ----------------- --------------
<S> <C> <C> <C>
$34,000,000 $10.00 3,400,000 April 30, 1996
</TABLE>
Range of Value
$34 million x 1.15 = $39.1 million or 3,910,000 shares at $10.00 per share
$34million x .085 = $28.9 million or 2,890,000 shares at $10.00 per share
7
<PAGE>
FERGUSON & CO., LLP
- -------------------
Pro Forma Assumptions
1. Net proceeds from the conversion were invested at the beginning of the
period at 5.50%, which was the yield on one year US Treasury issues as of
April 30, 1996. This rate was selected because it is considered more
representative of the rate the Bank is likely to earn.
2. Home Savings' ESOP will acquire 8% of the conversion stock with loan
proceeds obtained from the Holding Company; therefore there will be no
interest expense. We have assumed that the ESOP expense is 10% annually of
the ESOP purchase of this issue.
3. Home Savings' RP will acquire 4% of the current issue through open market
purchases at $10 per share and the expense is recognized ratably over five
years as the shares vest.
4. All pro forma income and expense items are adjusted for income taxes at a
combined state and federal rate of 37%.
5. In calculating the pro forma adjustments to net worth, the ESOP and RP are
deducted in accordance with generally accepted accounting principles.
6. Earnings per share calculations have ignored AICPA SOP 93-6.
8
<PAGE>
Exhibit 99(C)
HOME SAVINGS BANK OF ALBEMARLE, SSB
155 West South Street
Albemarle, North Carolina 28001
(704) 982-9184
----------------------------------------
NOTICE OF SPECIAL MEETING OF MEMBERS
To be Held on ____________, 1996
----------------------------------------
NOTICE IS HEREBY GIVEN, that a special meeting (the "Special Meeting") of
the members of Home Savings Bank of Albemarle, SSB ("Home") will be held at 155
West South Street, Albemarle, North Carolina 28001 on ________, 1996
at ____.m., local time, to consider and vote upon:
1. The Plan of Holding Company Conversion (the "Plan of Conversion")
pursuant to which, among other things, (i) Home will convert from a
North Carolina-chartered savings bank organized in mutual form to a
North Carolina-chartered savings bank organized in stock form (the
"Conversion"), and in connection therewith will adopt an amended
Certificate of Incorporation and Bylaws, (ii) Home will sell its
capital stock to South Street Financial Corp. (the "Holding Company"),
a North Carolina 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, all as more specifically set forth in the Plan of
Conversion; and
2. Such other business as may relate to the purposes set forth in this
Notice of Special Meeting and properly come before the meeting and any
adjournment(s) thereof. Management is not aware of any such other
business.
The Board of Directors has fixed the close of business on __________, 1996
as the record date for the determination of members entitled to notice of and to
vote at the Special Meeting and at any adjournment(s) thereof. Approval of the
Plan of Conversion requires the affirmative vote, cast in person or by proxy, of
a majority of the total outstanding votes entitled to be cast by voting members
at the Special Meeting. A copy of the Plan of Conversion, which includes copies
of the proposed amended and restated Certificate of Incorporation and Bylaws, is
attached to this Proxy Statement as Attachment I.
BY ORDER OF THE BOARD OF DIRECTORS
Sheila S. Barbee
Secretary
Albemarle, North Carolina
______________, 1996
<PAGE>
PLEASE COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING PROXY CARD(S) IN
THE ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE, WHETHER OR NOT YOU PLAN
TO ATTEND THE SPECIAL MEETING. THIS WILL ASSURE YOUR REPRESENTATION AT THE
SPECIAL MEETING AND MAY AVOID THE COST OF ADDITIONAL COMMUNICATIONS. THIS WILL
NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE SPECIAL MEETING. YOU
MAY REVOKE YOUR WRITTEN PROXY BY DELIVERING A WRITTEN INSTRUMENT TO SUCH EFFECT
OR A DULY EXECUTED PROXY BEARING A LATER DATE TO THE SECRETARY OF HOME AT ANY
TIME PRIOR TO OR AT THE SPECIAL MEETING. PROPERLY COMPLETED PROXIES WILL BE
VOTED IN ACCORDANCE WITH THE INSTRUCTIONS INDICATED THEREON, OR IF NO
INSTRUCTIONS ARE INDICATED, FOR APPROVAL OF THE PLAN OF CONVERSION.
---
YOUR PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF HOME. THE HOME BOARD
OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT VOTING MEMBERS VOTE FOR APPROVAL OF THE
---
PLAN OF CONVERSION. FAILURE TO VOTE IN PERSON OR BY PROXY WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST THE PLAN OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF
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CONVERSION WILL NOT OBLIGATE ANY PERSON TO PURCHASE COMMON STOCK, AND VOTING
AGAINST OR A FAILURE TO VOTE WILL NOT PRECLUDE ANY SUCH PURCHASE.
THE ENCLOSED PROXY IS SOLICITED FOR THIS SPECIAL MEETING ONLY, AND ANY
ADJOURNMENT(S) THEREOF, AND WILL NOT BE USED FOR ANY OTHER MEETING.
<PAGE>
HOME SAVINGS BANK OF ALBEMARLE, S.S.B.
155 West South Street
Albemarle, North Carolina 28001
(704) 982-9184
_______________________________
SUMMARY PROXY STATEMENT
_______________________________
SPECIAL MEETING OF MEMBERS TO BE HELD ON ________, 1996
PURPOSE OF THE SPECIAL MEETING
This Summary Proxy Statement (the "Proxy Statement") is being furnished to
you in connection with the solicitation by the Board of Directors of Home
Savings Bank of Albemarle, S.S.B. ("Home") of proxies to be voted at a special
meeting of members (the "Special Meeting") to be held at Home's main office at
155 West South Street, Albemarle, Stanly County, North Carolina 28001 on
________, 1996 at ____ .m., local time.
The Special Meeting will be held for the purpose of considering and voting
upon the proposed Plan of Holding Company Conversion adopted by the Board of
Directors of Home on May 14, 1996 (the "Plan of Conversion"), which provides for
the adoption by Home of an amended Certificate of Incorporation and Bylaws. If
the Plan of Conversion is approved by a majority of the total votes eligible to
be cast and if certain other conditions are satisfied, Home will convert from a
North Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank, and Home will become the wholly-owned subsidiary of South Street
Financial Corp. (the "Holding Company"), a North Carolina corporation formed by
Home to own all of the stock of Home issued pursuant to the Plan of Conversion
(the "Conversion"). The proposed Plan of Conversion, including the proposed
forms of Home's amended Certificate of Incorporation and Bylaws, is attached to
this Proxy Statement as Attachment I. For a description of the Conversion, see
"THE CONVERSION."
This Proxy Statement is dated ___________, 1996, and is first being mailed
to members of Home, together with the Holding Company's Prospectus dated
__________, 1996 (the "Prospectus"), on or about ___________, 1996.
The following information is not complete and is qualified in its entirety
by the Plan of Conversion, which is attached to this Proxy Statement and
includes Home's proposed amended Certificate of Incorporation and Bylaws, and by
the information and financial statements and accompanying notes contained in the
Prospectus which accompanies this Proxy Statement.
South Street Financial Corp.
The Holding Company is a North Carolina corporation recently organized by
the Board of Directors of Home to acquire all of the capital stock that Home
will issue upon its Conversion from the mutual to stock form of ownership. The
Holding Company has not as yet engaged in any business. Upon completion of the
Conversion, its business will initially consist of owning Home, investing the
proceeds of the Conversion that are retained by the Holding Company and holding
the indebtedness to be outstanding as a result of a loan proposed to be made by
the Holding Company to Home's Employee Stock Ownership Plan (the "ESOP"). See
"MANAGEMENT OF HOME --Employee Stock Ownership Plan" in the Prospectus. The
Holding Company has received the approval of the Administrator, Savings
Institutions Division, North Carolina Department of Commerce (the
"Administrator") and the Board of Governors of the Federal Reserve System (the
"Federal Reserve") to acquire Home.
<PAGE>
The executive office of the Holding Company is located at 155 West South
Street, Albemarle, North Carolina, and its telephone number is (704) 982-9184.
Home Savings Bank of Albemarle, S.S.B.
Home is a North Carolina-chartered mutual savings bank and has been in
operation since 1911. Home has been a member of the Federal Home Loan Bank
("FHLB") system since 1954. Home's deposits have been federally insured since
1954 and are now insured by the Savings Association Insurance Fund (the "SAIF")
of the Federal Deposit Insurance Corporation ("FDIC") to the maximum extent
permitted by law.
Home conducts business through its main office in Albemarle, North Carolina
and its full-service branch office in Locust, North Carolina. Its primary
market area consists of Stanly County, North Carolina. At March 31, 1996, Home
had total assets of $167.0 million, net loans of $106.7 million, deposits of
$144.3 million and equity of $20.7 million which is 12.39% of total assets.
Home is primarily engaged in the business of attracting retail deposits
from the general public and using those deposits to make mortgage loans secured
by one-to-four family residential real estate located in Home's primary market
area. Home also makes home equity line of credit loans and other subordinate
lien loans, loans secured by improved nonresidential real property, loans
secured by undeveloped real property and construction loans. See "BUSINESS OF
HOME" in the Prospectus. Home has been and intends to continue to be a
community-oriented financial institution offering a variety of financial
services to meet the needs of the communities it serves.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of Home has fixed the close of business on
__________, 1996 (the "Voting Record Date") as the record date for determining
the members entitled to notice of and to vote at the Special Meeting. Home's
depositors (including beneficial owners of Individual Retirement Accounts
("IRA's")) and borrowers are members of Home who are entitled to vote under its
current Certificate of Incorporation and Bylaws.
At the Special Meeting, each deposit account holder entitled to vote may
cast one vote for each $100 or fraction thereof of the aggregate withdrawal
value of any deposit account in Home as of the Voting Record Date. Each borrower
member entitled to vote may cast one vote as a borrower in addition to the
number of votes such member may be entitled to cast as an owner of a deposit
account. No member, however, may cast more than 1,000 votes. A deposit account
or loan creates a single membership for voting purposes, even though more than
one person has an interest in such deposit account or is obligated on such loan.
Beneficial owners of IRA's at Home will be considered voting members
entitled to vote on the Plan of Conversion. Votes attributed to IRA accounts
will not be cast if not cast by such beneficial owners. The legal owners of
other fiduciary accounts, rather than the beneficial owners, will be treated as
the member entitled to cast the votes for such account, unless the trust
agreement or any other agreement relating to the fiduciary's authority provides
otherwise.
Twenty-five members present in person or by proxy at the Special Meeting
will constitute a quorum for the transaction of business. The affirmative vote
of at least a majority of the total outstanding votes of Home's members eligible
to be cast at the Special Meeting is required for approval of the Plan of
Conversion. As of the Voting Record Date, Home's records disclose that there
were _______ votes entitled to be cast at the Special Meeting, of which _______
votes would represent a majority.
2
<PAGE>
Members may vote at the Special Meeting in person or by proxy. Each proxy
solicited hereby, if properly executed, duly returned prior to the date of the
Special Meeting, and not revoked prior to or at the Special Meeting, will be
voted at the Special Meeting in accordance with the member's instructions
indicated thereon. If no contrary voting instructions are indicated on the
proxy card, the proxy will be voted FOR the Plan of Conversion. If any other
---
matters are properly presented before the Special Meeting, the proxies solicited
hereby will be voted on such matters in accordance with the best judgment of the
proxyholders named therein. Management of Home is not aware of any other
business to be presented at the Special Meeting.
Any member giving a proxy may revoke it at any time before it is voted by
delivering to the Secretary of Home before or at the Special Meeting either a
written revocation of the proxy, or by delivering to the Secretary of Home at or
prior to the Special Meeting a duly executed proxy bearing a later date, or by
attending the Special Meeting and voting in person. Proxies are being solicited
only for use at the Special Meeting and any and all adjournments thereof and
will not be used for any other meeting. No previously provided general proxies
will be voted at the Special Meeting.
The Board of Directors' solicitation of proxies for the Special Meeting is
being made by means of this Proxy Statement. It may be followed by further
letters and personal calls to members by employees or agents of Home. All costs
of this proxy solicitation will be paid by Home.
The directors and executive officers of Home were entitled to cast _____
votes as of the Voting Record Date for the Special Meeting.
SUMMARY
Recommendation of Management The Board of Directors of Home unanimously
recommends approval of the Plan of Conversion.
The directors and certain officers of Home have
a personal interest in the approval of the
Conversion to the extent that they will receive
certain benefits as a result of the Conversion.
See "MANAGEMENT OF HOME" in the Prospectus.
The Conversion Home, as a mutual savings bank, now has no
stockholders and no authority to issue capital
stock. By converting to the stock form of
organization, Home will be structured in the
form used by most commercial banks, other
business entities and a substantial number of
savings institutions. Conversion to a North
Carolina-chartered capital stock savings bank
and the formation of a holding company offers a
number of advantages which may be important to
the future and performance of Home, including
(i) a larger capital base for Home's
operations, (ii) enhanced future access to
capital markets and (iii) an opportunity for
depositors of Home to become stockholders of
the Holding Company. Following the Conversion,
the Holding Company will also be able to use
stock-related incentive programs to attract,
retain and provide incentives for qualified
directors and executive and other personnel of
the Holding Company and Home. Formation of the
Holding Company will provide greater
flexibility than Home would otherwise have to
diversify its business activities through
existing or newly formed subsidiaries, or
through acquisitions of, or mergers with
financial institutions, as well as other
companies. See "THE CONVERSION -- Purposes of
Conversion."
3
<PAGE>
Each person with a deposit account in Home has
pro rata rights, based upon the balance in his
or her account, in the net worth of Home upon
liquidation. However, this right is tied to the
depositor's account and has no tangible market
value separate from such deposit account.
Further, Home's depositors can realize value
with respect to their interests only in the
unlikely event that Home is liquidated and has
a positive net worth. In such an event, the
depositors of record at that time, as owners,
would share pro rata in any residual surplus
after other claims, including those with
respect to the deposit accounts of depositors,
are paid. Upon Home's conversion to stock form,
its Certificate of Incorporation will be
amended to authorize the issuance of permanent
nonwithdrawable capital stock to represent the
ownership of Home, including its net worth. All
of the outstanding capital stock of Home will
be acquired by the Holding Company, which in
turn will issue shares of its common stock, no
par value (the "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 Home. The capital stock
will be separate and apart from deposit
accounts and will not be insured by the FDIC or
any other governmental agency.
Under Home's current Certificate of
Incorporation and Bylaws, deposit account
holders and borrowers at Home have voting
rights with respect to certain matters relating
to Home, including the election of directors.
After the Conversion, (i) neither deposit
account holders nor borrowers will have voting
rights with respect to Home and will therefore
not be able to elect directors of Home or
control its affairs; (ii) voting rights with
respect to Home will be vested in the Holding
Company as the sole stockholder of Home; and
(iii) voting rights with respect to the Holding
Company will be vested in the Holding Company's
stockholders. Each purchaser of Common Stock
will be entitled to vote on any matters to be
considered by the Holding Company's
stockholders.
The account balances, interest rates and other
terms of deposit accounts at Home and the
existing deposit insurance coverage of such
accounts will not be affected by the Conversion
(except to the extent that a depositor directs
Home to withdraw funds to pay for Common Stock
purchased by the depositor). Furthermore, the
Conversion will not affect any loan account,
the balances, interest rates, maturities or
other terms of these accounts, or the
obligations of borrowers under their individual
contractual arrangements with Home.
Home will continue without interruption, during
and after completion of the Conversion, to
provide its services to depositors and
borrowers pursuant to existing policies and
will maintain its offices operated by the
existing management and employees of Home.
4
<PAGE>
As required by North Carolina conversion
regulations, the Plan of Conversion provides
that, upon completion of the Conversion, a
"Liquidation Account" will be established for
the benefit of (i) Home's depositors as of
December 31, 1994 who had aggregate deposits as
of the close of business on such date of at
least $50 ("Eligible Account Holders") and (ii)
Home's depositors as of ________________, 1996
who had aggregate deposits as of the close of
business on such date of at least $50
("Supplemental Eligible Account Holders"). See
"THE CONVERSION -- Effects of Conversion --
Liquidation Rights."
The Offerings As part of the Conversion, the Holding Company
is making a subscription offering (the
"Subscription Offering") of Common Stock to
certain of Home's depositors, members,
directors, officers, employees and an employee
benefit plan in the order of priorities set
forth below under "THE CONVERSION --
Subscription Offering." In addition, any shares
which remain unsubscribed for in the
Subscription Offering will be offered in a
community offering (the "Community Offering")
to members of the general public, with first
priority given to natural persons and trusts of
natural persons residing in Stanly County,
North Carolina and second priority given to
natural persons or trusts of natural persons
residing in Anson, Cabarrus, Montgomery, Rowan
and Union Counties, North Carolina (the
"Surrounding Counties"), including IRA's, Keogh
accounts and similar retirement accounts
established for the benefit of natural persons
who are residents of Stanly County and the
Surrounding Counties. See "THE CONVERSION --
Community Offering." If necessary, all shares
of Common Stock not purchased in the
Subscription Offering and Community Offering,
if any, may be offered for sale to the general
public through a syndicate of registered
broker-dealers as selected dealers (the
"Syndicated Community Offering"). See "THE
CONVERSION --Syndicated Community Offering."
The Plan of Conversion requires that the
aggregate dollar amount of the Common Stock
sold equal not less than the minimum nor more
than the maximum of the valuation range of the
aggregate pro forma market value of Home and
the Holding Company (the "Valuation Range")
established by an independent appraisal;
provided, however, with the consent of the
Administrator and the FDIC, the aggregate
dollar amount of the Common Stock sold may be
increased to as much as 15% above the maximum
of the Valuation Range, without a
resolicitation of subscribers or any right to
cancel, rescind or change subscriptions, in
order to reflect changes in market and
financial conditions following commencement of
the Subscription Offering. The current
Valuation Range established in connection with
the Conversion is from a minimum of $28,900,000
to a maximum of $39,100,000 with a midpoint of
$34,000,000. The Valuation Range is subject to
change prior to consummation of the Conversion.
Such change would not require a resolicitation
of votes with respect to approval of the Plan
of Conversion. See "THE CONVERSION --Purchase
Price of Common Stock and Number of Shares
Offered."
5
<PAGE>
Restrictions on Transfer of
Subscription Rights Prior to the completion of the Conversion, no
person may transfer or enter into any agreement
or understanding to transfer the legal or
beneficial ownership of the subscription rights
issued under the Plan of Conversion or the
shares of Common Stock to be issued upon their
exercise. Each person exercising subscription
rights will be required to certify that the
purchase of Common Stock is solely for the
purchaser's own account and that there is no
agreement or understanding regarding the sale
or transfer of such shares. See "THE
CONVERSION -- Certain Restrictions on Transfer
of Subscription Rights; False or Misleading
Order Forms." Subscription rights are
nontransferable and persons found to be
attempting to transfer subscription rights will
be subject to the forfeiture of such rights and
possible further sanctions. The Holding Company
and Home will refer to the Administrator any
situations that they believe may involve a
transfer of subscription rights and will not
honor orders known or believed by them to
involve the transfer of such rights.
Conditions for Conversion Under the Plan of Conversion, the terms of the
Administrator's approval, and applicable North
Carolina conversion regulations, consummation
of the Conversion is subject to satisfaction of
certain conditions, including the following:
(i) approval of the Plan of Conversion by the
affirmative vote of a majority of the votes
eligible to be cast by members of Home at the
Special Meeting; (ii) sale of shares of Common
Stock for an aggregate purchase price equal to
not less than the minimum or more than the
maximum of the Valuation Range unless the
aggregate purchase price is increased to as
much as 15% above the maximum with the consent
of the Administrator and FDIC, and (iii)
receipt by the Holding Company and Home of
favorable opinions of counsel or other tax
advisors as to the federal and state tax
consequences of the Conversion. If all
conditions for consummation of the Conversion
are not satisfied, no Common Stock will be
issued, Home will continue to operate as a
North Carolina-chartered mutual savings bank,
all subscription funds will be promptly
returned with interest at Home's statement
savings rate, and all deposit withdrawal
authorizations (and holds placed on such
accounts) will be canceled. In such an event,
the Holding Company would not acquire control
of Home.
Tax Consequences Home has received an opinion from counsel with
respect to the income tax consequences of the
Conversion. See "THE CONVERSION -- Income Tax
Consequences."
Benefits to Directors, Officers
and Employees In connection with the Conversion, Home will
enter into employment agreements with its
President and Chief Executive Officer, Carl M.
Hill and its Executive Vice President, R.
Ronald Swanner. In addition, Home intends to
adopt a Severance Plan which would benefit its
employees in the event there was a change in
control of the Holding Company. Also,
directors, officers and certain employees of
Home would receive restricted grants of Common
Stock of the Holding Company and options to
purchase additional shares of such Common
6
<PAGE>
Stock, if such benefits are approved by the
Holding Company's stockholders at a meeting to
be held no sooner than six months after the
Conversion. In addition, in connection with the
Conversion, Home has established the ESOP which
will provide stock-based benefits to its
employees. See "Benefits to Directors and
Officers."
Stock Purchases by Management The directors and executive officers of Home
and their associates anticipate subscribing for
69,500 shares at a cost of $695,000 in the
Conversion. See "Anticipated Stock Purchases by
Management."
Use of Proceeds The net proceeds from the sale of the Common
Stock in the Conversion, including shares
purchased by the ESOP with funds loaned by the
Holding Company, are estimated to be between
$27,836,000 and $37,840,000, depending upon the
actual expenses of the Conversion and other
factors. See "PRO FORMA DATA" in the
Prospectus. The Holding Company intends to use
approximately 8% of the gross proceeds of the
Offerings (between $2,312,000 and $3,128,000
assuming the issuance of between 2,890,000 and
3,910,000 shares) to fund the loan made to the
ESOP to purchase shares of Common Stock in the
Conversion. After deducting the amount of such
loan from the proceeds, the Holding Company is
expected to retain approximately 50% of the
remaining net proceeds from the issuance of the
Common Stock. The Holding Company will invest
these proceeds primarily in interest-bearing
deposits, U.S. government, federal agency and
other marketable securities with terms of up to
five years.
The remainder of the net proceeds from the sale
of the Common Stock will be paid by the Holding
Company to Home in exchange for all of the
capital stock of Home. The net proceeds paid to
Home will become part of Home's general funds,
and will be invested in mortgage and other
loans and investments consisting primarily of
U.S. government and federal agency obligations
in accordance with Home's lending and
investment policies. Net proceeds will also be
used for other general corporate purposes,
including, possibly, opening another branch
office, although Home has no existing plans to
open any additional office in the immediate
future.
If Home's proposed management recognition plan
(the "MRP") is approved by the stockholders of
the Holding Company at a meeting to be held no
sooner than six months after the Conversion, as
soon as practicable thereafter, the MRP will
acquire a number of shares of Common Stock
equal to 4% of the number of shares issued in
the Conversion. See "Benefits to Directors and
Officers -- Restricted Stock Grants." If all
such shares were acquired by the MRP in the
open market, and if such shares were acquired
at a price of $10.00 per share, Home would
contribute between $1,156,000 and $1,564,000,
respectively, to the MRP for this purpose,
assuming the sale of between 2,890,000 and
3,910,000 shares in the Conversion. The price
per share paid by the MRP could be more or less
than $10.00 per share, which would change the
total contribution to the MRP accordingly. See
"Use of Proceeds."
7
<PAGE>
Dividends The Board of Directors of the Holding Company
currently intends to establish a dividend
policy following the Conversion to pay a
regular quarterly cash dividend at a rate to be
determined. Payment of dividends will be
subject to determination and declaration by the
Holding Company's Board of Directors. The Board
of Directors will periodically review its
dividend policy in view of the operating
results and financial condition of the Holding
Company and Home, net worth and capital
requirements, regulatory restrictions, tax
consequences, industry standards, and general
economic conditions, and it will authorize cash
dividends to be paid if it deems such payment
appropriate and in compliance with applicable
law. In addition, the Board of Directors may
determine from time to time that it is prudent
to pay special cash dividends. Special cash
dividends, if paid, may be in addition to, or
in lieu of, regular cash dividends. The Board
will determine whether to pay special cash
dividends based upon its review of the Holding
Company's current and anticipated needs for
capital and its current and anticipated levels
of capital and earnings. Special dividends will
not be paid during periods when the Board
determines that the Holding Company needs funds
or that it can deploy funds at desirable levels
of profitability. On the other hand, the Board
of Directors may decide to pay special
dividends at times when the Board determines
that payment of such dividends uses such funds
to greater advantage than deploying them in the
Holding Company's operations. There can be no
assurance that any dividends will in fact be
paid on the Common Stock or that, if paid, any
such dividends will not be reduced or
eliminated in future periods. The Holding
Company and Home have agreed with the FDIC that
any cash dividends paid to stockholders during
the twelve-month period following the closing
of the Conversion will be paid out of
accumulated earnings and profits (as computed
for federal income tax purposes) and will not
constitute or be treated for tax purposes as
returns of capital to stockholders. The ability
of the Holding Company to pay dividends may be
dependent upon the Holding Company's receipt of
dividends from Home. There are regulatory
limitations on the amount of dividends which
Home can pay. In addition, see "TAXATION" in
the Prospectus for a discussion of federal
income tax provisions that may limit the
ability of Home to pay dividends to the Holding
Company without incurring a recapture tax. See
"DIVIDEND POLICY."
8
<PAGE>
RECOMMENDATION OF MANAGEMENT
THE BOARD OF DIRECTORS OF HOME RECOMMENDS THAT YOU VOTE FOR THE PLAN
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OF CONVERSION. FAILURE TO VOTE IN FAVOR OF THE PLAN OF CONVERSION, IN PERSON OR
BY PROXY, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PLAN OF CONVERSION.
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VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY PERSON TO
SUBSCRIBE FOR THE PURCHASE OF ANY STOCK, AND VOTING AGAINST THE PLAN OR FAILING
TO VOTE WILL NOT PRECLUDE ANY SUCH PURCHASE.
THE ADMINISTRATOR HAS APPROVED COMPLETION OF THE TRANSACTIONS
DESCRIBED IN THE PLAN OF CONVERSION SUBJECT TO APPROVAL BY THE MEMBERS OF HOME
AND SATISFACTION OF CERTAIN OTHER CONDITIONS. APPROVAL BY THE ADMINISTRATOR
DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION
BY THE ADMINISTRATOR.
9
<PAGE>
THE CONVERSION
General
Home's Board of Directors has been studying Home's strategic options
for several years. As a result of its analysis of the existing regulatory
environment, the competition faced by Home and other factors, Home's Board of
Directors decided to pursue the possibility of combining with another financial
institution with greater assets and similar management philosophies in a
"merger-conversion" transaction. On May 27, 1993, Home entered into an
Agreement and Plan of Reorganization (the "Agreement") with BB&T Financial
Corporation ("BB&T") pursuant to which Home would convert to the stock form of
ownership and simultaneously be merged with Branch Banking and Trust Company, a
wholly owned, North Carolina-chartered commercial bank subsidiary of BB&T. Home
and BB&T jointly terminated the Agreement on June 20, 1994. Home has continued
to evaluate its strategic options since that time, and the existing management
of Home now believes that it will be in the best interest of Home to remain an
independent financial institution. As a result, on May 14, 1996, Home's Board
of Directors adopted a Plan of Holding Company Conversion (the "Plan of
Conversion"). Home intends to pursue the business strategy described in the
Prospectus with the goal of maximizing stockholder value after the Conversion.
Neither the Holding Company nor Home has any existing plan to consider any
possible business combination, and neither company has any agreement or
understanding with respect to any possible business combination.
The Board of Directors' adoption of the Plan of Conversion is subject
to approval by the members of Home and receipt of required regulatory
approvals. Pursuant to the Plan of Conversion, Home will be converted from a
North Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank and will become a wholly-owned subsidiary of the Holding Company.
The Holding Company will issue its common stock, no par value (the "Common
Stock") to be sold in the Conversion and will use that portion of the net
proceeds thereof which it does not retain or loan to the ESOP to purchase the
capital stock of Home. See "USE OF PROCEEDS." By letter dated __________,
1996, the Administrator approved the Plan of Conversion, subject to approval by
the members of Home and satisfaction of certain other conditions. The Special
Meeting will be held on ________, 1996 for the purpose of considering approval
of the Plan of Conversion.
Consummation of the Conversion is contingent also upon receipt of the
approvals of the Federal Reserve and the Administrator for the Holding Company
to acquire Home. Those approvals have been received. The Conversion cannot be
consummated until the expiration of the Bank Merger Act of 1956 waiting period
which began to run upon approval by the Federal Reserve of the Holding Company's
application and expires _____________, 1996. Finally, consummation of the
Conversion is contingent upon receipt from the FDIC of a final non-objection
letter with respect to the transaction. The FDIC has sent to Home a
conditional notification that it does not intend to object to the Conversion.
The following is a summary of all material provisions of the Plan of
Conversion. It is qualified in its entirety by the provisions of the Plan of
Conversion, which contains a more detailed description of the terms of the
Conversion and has attached to it Home's proposed amended Certificate of
Incorporation and Bylaws. The Plan of Conversion is attached to this Proxy
Statement as Attachment I.
Purposes of Conversion
Home, as a mutual savings bank, now has no stockholders and no
authority to issue capital stock. By converting to the stock form of
organization, Home will be structured in the form used by most commercial banks,
other business entities and a substantial number of savings institutions.
Conversion to a North Carolina-chartered capital stock savings bank and the
formation of a holding company offers a number of advantages which may be
important to the future and performance of Home, including (i) a larger capital
base for Home's operations, (ii) enhanced future access to capital markets and
(iii) an opportunity for depositors of Home to become stockholders of the
Holding Company. Home also believes that by combining quality service and
products with a local ownership
10
<PAGE>
base, its customers and community members who become stockholders of the Holding
Company will be more inclined to continue to do business with, and perhaps bring
additional business to, Home.
After completion of the Conversion, the unissued common and preferred
stock authorized by the Holding Company's Articles of Incorporation will permit
the Holding Company, subject to market conditions, to raise additional equity
capital through further sales of securities. Following the Conversion, the
Holding Company will also be able to use stock-related incentive programs to
attract, retain and provide incentives for qualified directors and executive and
other personnel of the Holding Company and Home. See "MANAGEMENT OF HOME --
Employee Stock Ownership Plan," "-- Proposed Management Recognition Plan" and "-
- - Proposed Stock Option Plan" in the Prospectus.
Formation of the Holding Company will provide greater flexibility than
Home would otherwise have to diversify its business activities through existing
or newly formed subsidiaries, or through acquisitions of, or mergers with, both
mutual and stock institutions, as well as other companies. However, there are
no current arrangements, understandings or agreements regarding any such
business combinations.
Effects of Conversion
General. Each person with a deposit account in Home has pro rata
rights, based upon the balance in his or her account, in the net worth of Home
upon liquidation. However, this right is tied to the depositor's account and
has no tangible market value separate from such deposit account. Further,
Home's depositors can realize value with respect to their interests only in the
unlikely event that Home is liquidated and has a positive net worth. In such an
event, the depositors of record at that time, as owners, would share pro rata in
any residual surplus after other claims, including those with respect to the
deposit accounts of depositors, are paid.
Upon Home's conversion to stock form, its Certificate of Incorporation
will be amended to authorize the issuance of permanent nonwithdrawable capital
stock to represent the ownership of Home, including its net worth. See the
Amended Certificate of Incorporation and Bylaws which will become effective upon
consummation of the Conversion, which documents are attached to the Plan of
Conversion as a part of Attachment I. All of the outstanding capital stock of
Home will be acquired by the Holding Company, which in turn will issue the
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 Home. The capital stock
will be separate and apart from deposit accounts and will not be insured by the
FDIC or any other governmental entity.
Voting Rights. Under Home's current Certificate of Incorporation and
Bylaws, deposit account holders and borrowers have voting rights with respect to
certain matters relating to Home, including the election of directors. After the
Conversion, (i) neither deposit account holders nor borrowers will have voting
rights with respect to Home and will therefore not be able to elect directors of
Home or control its affairs; (ii) voting rights with respect to Home will be
vested in the Holding Company as the sole stockholder of Home; and (iii) voting
rights with respect to the Holding Company will be vested in the Holding
Company's stockholders. Each purchaser of Common Stock will be entitled to vote
on any matters to be considered by the Holding Company's stockholders. For a
description of the voting rights of the holders of Common Stock, see
"DESCRIPTION OF CAPITAL STOCK" in the Prospectus.
Deposit Accounts and Loans. The account balances, interest rates and
other terms of deposit accounts at Home and the existing deposit insurance
coverage of such accounts will not be affected by the Conversion (except to the
extent that a depositor directs Home to withdraw funds to pay for Common Stock
purchased by the depositor). Furthermore, the Conversion will not affect any
loan account, the balances, interest rates, maturities or other terms of these
accounts, or the obligations of borrowers under their individual contractual
arrangements with Home.
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Continuity. Home will continue without interruption, during and
after completion of the Conversion, to provide its services to depositors and
borrowers pursuant to existing policies and will maintain its offices operated
by the existing management and employees of Home.
Loans to Purchase Stock. Home cannot make any loan to any customer
the proceeds of which will be used to purchase Common Stock in the Conversion.
Liquidation Rights. In the unlikely event of a complete liquidation
of Home, either before or after Conversion, account holders would have claims
for the amount of their deposit accounts, including accrued interest, and would
receive the protection of deposit insurance up to applicable limits. In
addition to deposit insurance coverage, depositor liquidation rights before and
after Conversion would be as follows:
Liquidation Rights Prior to the Conversion. Prior to the Conversion,
in the event of a complete liquidation of Home, each holder of a deposit account
in Home would receive such holder's pro rata share of any assets of Home
remaining after payment of claims of all creditors (including the claims of all
depositors to the withdrawal value of their accounts, including accrued
interest). Such holder's pro rata share of such remaining assets, if any, would
be in the same proportion of such assets as the value of such holder's deposit
account was to the total value of all deposit accounts in Home at the time of
liquidation.
Liquidation Rights After the Conversion. As required by North
Carolina conversion regulations, the Plan of Conversion provides that, upon
completion of the Conversion, a memorandum account called a "Liquidation
Account" will be established for the benefit of (i) Home's depositors as of
December 31, 1994 who had aggregate deposits as of the close of business on such
date of at least $50 ("Eligible Account Holders") and (ii) Home's depositors as
of _________________, 1996 who had aggregate deposits as of the close of
business on such date of at least $50 ("Supplemental Eligible Account Holders").
The amount of the Liquidation Account will be equal to the net worth of Home as
of the date of its latest statement of financial condition contained in the
final prospectus relating to the sale of shares of Common Stock in the
Conversion. Under applicable regulations, Home will not be permitted to pay
dividends on, or repurchase any of, its capital stock if its net worth would
thereby be reduced below the aggregate amount then required for the Liquidation
Account. See "DIVIDEND POLICY" and see "SUPERVISION AND REGULATION --
Regulation of Home -- Restrictions on Dividends and Other Capital
Distributions" in the Prospectus. After the Conversion, Eligible Account
Holders and Supplemental Eligible Account Holders will be entitled, in the
event of a liquidation of Home, to receive liquidating distributions of any
assets remaining after payment of all creditors' claims (including the claims of
all depositors to the withdrawal values of their deposit accounts, including
accrued interest), before any distributions are made on Home's capital stock,
equal to their proportionate interests at that time in the Liquidation Account.
Each Eligible Account Holder and Supplemental Eligible Account Holder
will have an initial interest ("subaccount balance") in the Liquidation Account
for each deposit account held as of December 31, 1994 (the "Eligibility Record
Date") or as of __________________, 1996 (the "Supplemental Eligibility Record
Date"), respectively. Each initial subaccount balance will be the amount
determined by multiplying the total opening balance in the Liquidation Account
by the "Qualifying Deposit" (a deposit of at least $50 as of the Eligibility
Record Date or Supplemental Eligibility Record Date, as applicable) of such
deposit account divided by the total of all Qualifying Deposits on that date.
If the amount in the deposit account on any subsequent annual closing date of
Home is less than the balance in such deposit account on any other annual
closing date or the balance in such an account on the Eligibility Record Date or
Supplemental Eligibility Record Date, as the case may be, this interest in the
Liquidation Account will be reduced by an amount proportionate to any such
reduction, and will not thereafter be increased despite any subsequent increase
in the related deposit account. An Eligible Account Holder's or Supplemental
Eligible Account Holder's interest in the Liquidation Account will cease to
exist if the deposit account is closed. The Liquidation Account will never
increase and will be correspondingly reduced as the interests in the Liquidation
Account are reduced or cease to exist. In the event of a liquidation, any
assets remaining after the above liquidation rights of Eligible Account Holders
and Supplemental Eligible Account Holders are satisfied would be distributed to
the Holding Company, as sole stockholder of Home.
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A merger, consolidation, sale of bulk assets or similar combination or
transaction with another FDIC-insured depository institution, whether or not
Home is the surviving institution, would not be viewed as a complete liquidation
for purposes of distribution of the Liquidation Account. In any such
transaction, the Liquidation Account would be assumed by the surviving
institution to the full extent authorized by regulations of the Administrator as
then in effect.
Offering of Common Stock
As part of the Conversion, the Holding Company is making the
Subscription Offering of Common Stock in the priorities and to the persons
described below under "-- Subscription Offering." In addition, any shares which
remain unsubscribed for in the Subscription Offering will be offered in the
Community Offering to members of the general public, with first priority being
given to natural persons and trusts of natural persons residing in Stanly
County, North Carolina and with second priority being given to natural persons
or trusts of natural persons residing in the Surrounding Counties, including
IRA's, Keogh accounts and similar retirement accounts established for the
benefit of natural persons who are residents of Stanly County or the Surrounding
Counties. See "-- Community Offering." If necessary, all shares of Common
Stock not purchased in the Subscription Offering and Community Offering, if any,
may be offered for sale to the general public through a syndicate of registered
broker-dealers as selected dealers in the Syndicated Community Offering to be
managed by Trident Securities, Inc. ("Trident Securities"). See "-- Syndicated
Community Offering." The Plan of Conversion requires that the aggregate dollar
amount of the Common Stock sold equal not less than the minimum nor more than
the maximum of the Valuation Range established in connection with the
Conversion; provided, however, with the consent of the Administrator and the
FDIC, the aggregate dollar amount of the Common Stock sold may be increased to
as much as 15% above the maximum of the Valuation Range, without a
resolicitation of subscribers or any right to cancel subscriptions, in order
to reflect changes in market and financial conditions following commencement of
the Subscription Offering. See "-- Purchase Price of Common Stock and Number of
Shares Offered." If the Syndicated Community Offering is not feasible or
successful and Common Stock having an aggregate value of at least the minimum of
the Valuation Range is not subscribed for in the Subscription and Community
Offerings, the Holding Company will consult with the Administrator to determine
an appropriate alternative method of selling shares of Common Stock required to
be offered in the Conversion. The same per share price ($10.00) will be paid by
purchasers in the Subscription, Community and Syndicated Community Offerings
(collectively, the "Offerings").
The Subscription Offering will expire at the "Expiration Time," which
is 12:00 noon, local time, on ________________, 1996, unless, with the approval
of the Administrator, the offering period is extended by the Holding Company and
Home. The Community Offering, if any, may commence at any time following
commencement of the Subscription Offering and will terminate at any time
thereafter at the discretion of Home without prior notice, but not later than
______________, 1996, unless extended with the approval of the Administrator.
The Syndicated Community Offering, if any, or other sale of all shares not
subscribed for in the Subscription and Community Offerings, will be made as soon
as practicable following the Expiration Time. The sale of the Common Stock
must, under the North Carolina conversion regulations, be completed within 45
days after the Expiration Time unless such period is extended with the approval
of the Administrator. In the event such an extension is approved, subscribers
would be given the opportunity to increase (subject to maximum purchase
limitations), decrease (subject to minimum purchase limitations) or rescind
their subscriptions. In such event, substantial additional printing, legal and
accounting expenses may be incurred in completing the Conversion. The Offerings
may not be extended beyond __________________, 1998.
The commencement and completion of any required Community or
Syndicated Community Offering will be subject to market conditions and other
factors beyond the Holding Company's control. Accordingly, no assurance can be
given that any required Community or Syndicated Community Offering or other sale
of Common Stock will be commenced immediately after the Expiration Time or as to
the length of time that will be required to complete the sale of all shares of
Common Stock offered, and significant changes may occur in the estimated pro
forma market value of the Common Stock, together with corresponding changes in
the offering price, the number of shares being offered, and the net proceeds
realized from the sale of the Common Stock. The Plan of Conversion requires
that
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the Conversion be completed within 24 months after the date of approval of the
Plan of Conversion by Home's members.
Subscription Offering
In accordance with North Carolina conversion regulations, non-
transferable subscription rights ("Subscription Rights") have been granted under
the Plan of Conversion to the following persons in the following order of
priority: (i) Home's Eligible Account Holders, who are depositors as of
December 31, 1994, who had Qualifying Deposits on such date; (ii) the ESOP;
(iii) Home's Supplemental Eligible Account Holders, who are depositors as of
_______________, 1996, who had Qualifying Deposits on such date; (iv) Home's
depositor and borrower members as of _______________, 1996, the voting record
date for the Special Meeting, who are not Eligible Account Holders or
Supplemental Eligible Account Holders ("Other Members"); and (v) directors,
officers and employees of Home who are not Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members, subject to the
limitations described herein. All subscriptions received will be subject to the
availability of Common Stock after satisfaction of subscriptions of all persons
having prior rights in the Subscription Offering, and to the maximum purchase
limitations and other terms and conditions set forth in the Plan of Conversion
and described below.
Eligible Account Holders. Each Eligible Account Holder has been
granted, without payment therefor, non-transferable Subscription Rights to
purchase Common Stock up to the maximum purchase limitation described in "--
Minimum and Maximum Purchase Limitations." Subscription rights of Eligible
Account Holders are superior to all other Subscription Rights granted in the
Conversion, except that Subscription Rights of Eligible Account Holders are
subordinate to the prior right of the ESOP to purchase any shares of Common
Stock issued in the Conversion exceeding the number of shares of stock issued at
the maximum of the Valuation Range (i.e., more than 3,910,000 shares) (the
"Maximum Shares") up to an aggregate of 8% of the total number of shares offered
and sold in the Conversion. If Eligible Account Holders subscribe for more
shares of Common Stock than are available for purchase, the shares offered will
first be allocated among the subscribing Eligible Account Holders so as to
enable each subscribing Eligible Account Holder to the extent possible, to
purchase the number of shares necessary to make his or her total allocation of
Common Stock equal to the lesser of 100 shares of Common Stock or the number of
shares subscribed for by such Eligible Account Holder. Any shares remaining
after such allocation will be allocated among the subscribing Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that each such
Eligible Account Holder's Qualifying Deposits bears to the total of the
Qualifying Deposits of all such Eligible Account Holders.
ESOP. The ESOP has been granted, without payment therefor,
Subscription Rights to purchase a number of shares of Common Stock equal to 8%
of the aggregate number of shares issued in the Conversion. The ESOP is
expected to purchase 8% of the number of shares to be issued in the Conversion.
In the event that the number of shares issued in the Conversion exceeds the
Maximum Shares, the ESOP has the first priority to purchase shares in excess of
the Maximum Shares up to an aggregate of 8% of the total number of shares
offered and sold in the Conversion. See "-- Purchase Price of Common Stock and
Number of Shares Offered."
Supplemental Eligible Account Holders. To the extent that shares
remain available for purchase after satisfaction of subscriptions of Eligible
Account Holders and the ESOP, each Supplemental Eligible Account Holder has been
granted, without payment therefor, non-transferable Subscription Rights to
purchase Common Stock up to the maximum purchase limitation described in "--
Minimum and Maximum Purchase Limitations." If Supplemental Eligible Account
Holders subscribe for more shares of Common Stock than are available for
purchase, the shares offered will first be allocated among the subscribing
Supplemental Eligible Account Holders so as to enable each subscribing
Supplemental Eligible Account Holder to the extent possible, to purchase the
number of shares necessary to make his or her total allocation of Common Stock
equal to the lesser of 100 shares of Common Stock or the number of shares
subscribed for by such Supplemental Eligible Account Holder. Any shares
remaining after such allocation will be allocated among the subscribing
Supplemental Eligible Account Holders whose
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subscriptions remain unsatisfied in the proportion that each such Supplemental
Eligible Account Holder's Qualifying Deposits bears to the total of the
Qualifying Deposits of all such Supplemental Eligible Account Holders.
Other Members. To the extent that shares remain available for
purchase after satisfaction of subscriptions of Eligible Account Holders, the
ESOP and Supplemental Eligible Account Holders, Other Members of Home as of
______________, 1996 (the voting record date for the Special Meeting), other
than Eligible Account Holders and Supplemental Eligible Account Holders, have
each been granted, without payment therefor, non-transferable Subscription
Rights to purchase Common Stock up to the maximum purchase limitation described
in "-- Minimum and Maximum Purchase Limitations." If Other Members subscribe
for more shares of Common Stock than remain available for purchase by Other
Members, shares will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied in the proportion that the number of votes
eligible to be cast by each such Other Member bears to the total number of votes
eligible to be cast by all such Other Members at the Special Meeting.
Employees, Officers, and Directors. To the extent that shares remain
available for purchase after satisfaction of subscriptions of Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders and Other Members,
Home's employees, officers and directors who are not Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members have each been granted,
without payment therefor, non-transferable Subscription Rights to purchase
Common Stock up to the maximum purchase limitation described in "-- Minimum and
Maximum Purchase Limitations." If more shares are subscribed for by such
employees, officers and directors than are available for purchase by them, the
available shares will be allocated among subscribing employees, officers and
directors pro rata on the basis of the amount of their respective subscriptions.
Community Offering
Any shares of Common Stock which remain unsubscribed for in the
Subscription Offering will be offered by the Holding Company to members of the
general public in the Community Offering, which may commence at any time
following commencement of the Subscription Offering, with first priority given
to natural persons and trusts of natural persons residing or located in Stanly
County, North Carolina and with second priority being given to natural persons
or trusts of natural persons residing or located in the Surrounding Counties,
including IRA's, Keogh accounts and similar retirement accounts established for
the benefit of natural persons who are residents of Stanly County and the
Surrounding Counties. The Community Offering may terminate at any time after
the Expiration Time at the discretion of Home without prior notice, but no later
than _____________, 1996, unless further extended with the consent of the
Administrator. The Community Offering may not be extended beyond
______________, 1998. The opportunity to subscribe for shares of Common Stock
in the Community Offering is subject to the right of Home and the Holding
Company, in their sole discretion, to accept or reject any such orders, in whole
or in part, either at the time of receipt of an order or as soon as practicable
following the termination of the Community Offering. In the event Home and the
Holding Company reject any such orders after receipt, subscribers will be
promptly notified and all funds submitted with subscriptions will be returned
with interest at Home's statement savings rate.
In the event that subscriptions by first priority and second priority
subscribers in the Community Offering whose orders would otherwise be accepted
exceed the shares available for purchase in the Community Offering, then
subscriptions of natural persons and trusts of natural persons residing in
Stanly County, North Carolina, including IRA's, Keogh accounts and similar
retirement accounts established for the benefit of natural persons who are
residents of Stanly County ("First Priority Community Subscribers") will be
filled in full up to applicable purchase limitations (to the extent such
subscriptions are not rejected by Home and the Holding Company) prior to any
allocation to second priority subscribers in the Community Offering (natural
persons and trusts of natural persons residing in the Surrounding Counties)
("Second Priority Community Subscribers").
In the event of an oversubscription by First Priority Community
Subscribers whose orders would otherwise be accepted, shares of Common Stock
will be allocated first to each First Priority Community Subscriber whose order
is accepted in full or in part by Home and the Holding Company in the entire
amount of such order up to a
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number of shares no greater than 40,000 shares, which number shall be determined
by the Board of Directors of Home prior to the time the Conversion is
consummated with the intent to provide for a wide distribution of shares among
such subscribers. Any shares remaining after such allocation will be allocated
to each First Priority Community Subscriber whose order is accepted in full or
in part on an equal number of shares basis until all orders are filled. Such
allocation shall also be applied to subscriptions by Second Priority Community
Subscribers in the event shares are available for such subscribers but there is
an oversubscription by them.
Syndicated Community Offering
The Plan of Conversion provides that, if necessary, all shares of
Common Stock not purchased in the Subscription and Community Offerings, if any,
may be offered for sale to the general public in a Syndicated Community Offering
through a syndicate of registered broker-dealers as selected dealers ("Selected
Dealers") to be formed and managed by Trident Securities acting as agent of the
Holding Company in the sale of the Common Stock. The Holding Company and Home
have the right to reject orders, in whole or in part, in their sole discretion
in the Syndicated Community Offering. Neither Trident Securities nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of the Common Stock in the Syndicated Community Offering; however,
Trident Securities has agreed to use its best efforts in the sale of shares in
the Syndicated Community Offering. Common Stock sold in the Syndicated Community
Offering will be sold at the purchase price of $10.00 per share which is the
same price as all other shares being offered in the Conversion.
It is estimated that the Selected Dealers will receive a negotiated
commission based on the amount of Common Stock sold by the Selected Dealer,
payable by the Holding Company. 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 (the "Order Date")
for the purchase of shares of Common Stock. When and if the Holding Company
believes that enough indications and orders have been received in the Offerings
to consummate the Conversion, Trident Securities will request, as of the Order
Date, Selected Dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected Dealers will
send confirmations of the orders to such customers on the next business day
after the Order Date. Selected Dealers will debit the accounts of their
customers on a date which will be three business days from the Order Date
("Debit 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 Debit Date. On the next business day following the Debit
Date, Selected Dealers will remit funds to the account that the Holding Company
establishes for each Selected Dealer. After payment has been received by the
Holding Company from Selected Dealers, funds will earn interest at Home's
statement savings rate until the consummation of the Conversion. In the event
the Conversion is not consummated as described above, funds with interest will
be returned promptly to the Selected Dealers, who, in turn, will promptly credit
their customers' brokerage accounts.
The Syndicated Community Offering may close at any time after the
Expiration Time at the discretion of Home and the Holding Company, but in no
case later than ______________, 1996, unless extended with the consent of the
Administrator. The Syndicated Community Offering may not be extended beyond
___________, 1998.
Certain Restrictions on Transfer of Subscription Rights; False or Misleading
Order Forms
The Subscription Rights granted under the Plan of Conversion are non-
transferable. Subscription Rights may be exercised only by the person to whom
they are issued and only for his or her own account. Persons exercising
Subscription Rights are required to certify that they are purchasing shares for
their own account within the purchase limitations set forth in the Plan of
Conversion and that they have no agreement or understanding for the sale or
transfer of such shares.
Home reserves the right to make an independent investigation of any
facts or circumstances brought to its attention that indicate or tend to
indicate that one or more persons acting independently or as a group acting in
concert may be attempting to violate or circumvent the regulatory prohibition on
transferability of Subscription
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Rights. The nature and extent of such investigation will be at Home's sole
discretion and Home may require a holder of Subscription Rights to provide
certified affidavits and other documentation to satisfy Home that its Plan of
Conversion and North Carolina and federal conversion regulations regarding
nontransferability are not being subverted by actions of holders of Subscription
Rights. In extreme cases Home reserves the right to seek legal advice from the
General Counsel of the Administrator as to compliance with all regulations
governing the Conversion, including the nontransferability of Subscription
Rights.
The Plan of Conversion provides that, if Home's Board of Directors
determines that a subscriber (i) has submitted false or misleading information
on his or her Stock Order Form or otherwise in connection with the attempted
purchase of shares, (ii) has attempted to purchase shares of Common Stock in
violation of provisions of the Plan of Conversion or applicable law or (iii)
fails to cooperate with attempts by Home or the Holding Company or their
employees or agents to verify information with respect to purchase rights, the
Board of Directors may reject the order of such subscriber and may refer the
situation to the Administrator.
No Fractional Shares
In making allocations in the event of oversubscriptions, all
computations will be rounded down to the nearest whole share; no fractional
shares will be issued. Excess and other amounts sent by subscribers which are
not used to satisfy subscriptions will be refunded with interest at Home's
statement savings rate, and amounts designated for withdrawal from deposit
accounts will be released.
Purchase Price of Common Stock and Number of Shares Offered
The purchase price of shares of Common Stock sold in the Subscription
Offering, Community Offering and Syndicated Community Offering will be $10.00
per share. The North Carolina regulations governing conversions of North
Carolina-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 Valuation Range which is established in the Conversion
and is described below; provided, however, that with the consent of the
Administrator and the FDIC the aggregate purchase price of the Common Stock sold
may be increased to up to 15% above the maximum of the 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.
Home has retained Ferguson & Co., LLP ("Ferguson"), an independent
appraisal firm experienced in the valuation and appraisal of savings
institutions and their holding companies, to prepare an appraisal of the pro
forma market value of Home and the Holding Company and to assist Home in
preparing a business plan. For its services in determining such valuation and
assisting with the business plan, Ferguson will receive an aggregate fee of
$32,000 and will be reimbursed for certain reasonable out-of-pocket expenses.
Home has agreed to indemnify Ferguson and its employees against certain losses
(including any losses in connection with claims under the federal securities
laws) arising out of its services. Ferguson's address is Suite 550, 122 West
John Carpenter Freeway, Irving, Texas.
FDIC rules with respect to appraisals 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.
Ferguson has informed Home that its appraisal has been made in
reliance upon the information contained in the Prospectus, including the
financial statements of Home. Ferguson has further informed Home that it also
considered the following factors, among others, in making the appraisal: (i) the
present and projected operating results and financial condition of the Holding
Company and Home; (ii) the economic and demographic conditions
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in Home's existing market area; (iii) certain historical, financial and other
information relating to Home; (iv) the proposed dividend policy of the Holding
Company; (v) a comparative evaluation of the operating and financial statistics
of Home with those of other savings institutions; (vi) the aggregate size of the
offering of the Common Stock; and (vii) the trading market for the securities of
institutions Ferguson believes to be comparable in relevant respects to Home and
the Holding Company and general conditions in the markets for such securities.
In addition, Ferguson has advised Home that it has considered the effect of the
Conversion on the net worth and earnings potential of the Holding Company and
Home.
On the basis of its consideration of the above factors, Ferguson has
advised Home that, in its opinion, at April 30, 1996, the Valuation Range of
Home and the Holding Company was from a minimum of $28,900,000 to a maximum of
$39,100,000, with a midpoint of $34,000,000. Based upon such valuation and a
purchase price for shares offered in the Conversion of $10.00 per share, the
number of shares to be offered ranges from a minimum of 2,890,000 shares to a
maximum of 3,910,000 shares, with a midpoint of 3,400,000 shares.
The Board of Directors of Home has reviewed the methodology and
assumptions used by Ferguson in preparing the appraisal and has determined that
the Valuation Range, as well as the methodology and assumptions used, were
reasonable and appropriate.
Upon completion of the Subscription, Community and Syndicated
Community Offerings, Ferguson will confirm or update its valuation of the
estimated aggregate pro forma market value of Home and the Holding Company.
Based on the confirmed or updated appraisal, a determination will be made of the
total number of shares of Common Stock which shall be offered and sold in the
Conversion.
With the consent of the Administrator and the FDIC, the aggregate
price of the shares sold in the Conversion may be increased by up to 15% above
the maximum of the Valuation Range, or to $44,965,000 (4,496,500 shares),
without a resolicitation of subscribers and without any right to cancel, rescind
or change subscription orders, to reflect changes in market and financial
conditions following commencement of the Subscription Offering.
No sale of shares of Common Stock may be consummated unless, after the
end of the offering period, Ferguson confirms to Home, and the Holding Company
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, would cause Ferguson to
conclude that the aggregate purchase price of the Common Stock sold in the
Conversion is incompatible with its estimate of the aggregate pro forma market
value of Home and the Holding Company at the conclusion of the Subscription and
Community Offerings or Syndicated Community Offering, if any. If the aggregate
pro forma market value of Home and the Holding Company as of such date is within
the Valuation Range (or, with the consent of the Administrator and FDIC, not
more than 15% above the maximum of the Valuation Range), then such pro forma
market value will determine the number of shares of Common Stock to be sold in
the Conversion. If there has occurred a change in the aggregate pro forma
market value of Home and the Holding Company so that the aggregate pro forma
market value is below the minimum of the Valuation Range or more than 15% above
the maximum of the Valuation Range, a resolicitation of subscribers may be made
based upon a new Valuation Range, the Plan of Conversion may be terminated or
such other actions as the Administrator and the FDIC may permit may be taken.
In the event of a resolicitation, subscribers would be given a
specified time period within which to respond to the resolicitation. If a
subscriber fails to respond to the resolicitation by the end of such period, the
subscription of such subscriber will be canceled, funds submitted with the
subscription will be refunded promptly with interest at Home's statement savings
rate, and holds on accounts from which withdrawals were designated will be
released. Any such resolicitation will be by means of an amended prospectus
filed with the Securities Exchange Commission ("SEC"). A resolicitation may
delay completion of the Conversion. If the Plan of Conversion is terminated,
all funds will be returned promptly with interest at Home's statement savings
rate from the date payment was deemed received, and holds on funds authorized
for withdrawal from deposit accounts will be released. See "-- Exercise of
Subscription Rights and Purchases in the Community Offering."
18
<PAGE>
The valuation by Ferguson is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing Common
Stock. Ferguson did not independently verify the financial statements and other
information provided by Home, nor did Ferguson value independently the assets or
liabilities of Home. The valuation considers Home as a going concern and should
not be considered as an indication of the liquidation value of Home or the
Holding Company. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject to
change from time to time, no assurance can be given that persons purchasing such
shares in the Conversion will thereafter be able to sell shares at prices in the
range of the foregoing valuation of the pro forma market value thereof.
A copy of the complete appraisal by Ferguson is on file and available
for inspection at the office of the Savings Institutions Division of the North
Carolina Department of Commerce, Tower Building, Suite 301, 1110 Navaho Drive,
Raleigh, North Carolina 27609. A copy is also available for inspection at the
Stock Information Center established in connection with the Conversion at Home's
headquarters office at 155 West South Street, Albemarle, North Carolina, in an
area separate from Home's banking operations. A copy of the appraisal has also
been filed as an exhibit to the Registration Statement filed with the Securities
and Exchange Commission ("SEC") with respect to the Common Stock offered by the
Prospectus. See "ADDITIONAL INFORMATION."
Exercise of Subscription Rights and Purchases in Community Offering
In order for Subscription Rights to be effectively exercised in the
Subscription Offering and in order to purchase in the Subscription Offering, a
Stock Order Form, accompanied by the required payment for the aggregate dollar
amount of Common Stock desired or appropriate instructions authorizing
withdrawal from one or more Home deposit accounts (other than negotiable order
of withdrawal accounts or other demand deposit accounts), must be received by
Home by the Expiration Time, which is 12:00 noon, local time, on ______________,
1996. However, the ESOP will not be required to make payment for shares
subscribed for until the date set for consummation of the Conversion; provided,
however, that at the time the ESOP submits its order form, it has obtained a
commitment from the Holding Company or an independent third party lender to loan
the ESOP the funds necessary to satisfy its order. Subscription Rights (i) for
which Home does not receive Stock Order Forms by the Expiration Time (unless
such time is extended), or (ii) for which Stock Order Forms are executed
defectively or are not accompanied by full payment (or appropriate withdrawal
instructions) for subscribed shares, will expire whether or not Home has been
able to locate the persons entitled to such rights. In order to purchase in the
Community Offering, the Stock Order Form, accompanied by the required payment
for the aggregate dollar amount of Common Stock desired or appropriate
instructions authorizing withdrawal from one or more Home deposit accounts
(other than negotiable order of withdrawal accounts or other demand deposit
accounts), must be received by Home prior to the time the Community Offering
terminates, which could be at any time subsequent to the Expiration Time. No
wire transfer, facsimile, altered or photocopied Stock Order Form will be
accepted.
The amount to be remitted with the Stock Order Form shall be the
aggregate dollar amount that a subscriber or purchaser desires to invest in the
Subscription and Community Offerings. Payment must accompany all completed
Stock Order Forms submitted in the Subscription and Community Offerings in order
for subscriptions to be valid.
Payment for shares will be permitted to be made by any of the
following means: (i) in cash, if delivered in person to either office of Home;
(ii) by check, bank draft, negotiable order of withdrawal or money order,
provided that the foregoing will only be accepted subject to collection and
payment; or (iii) by appropriate authorization of withdrawal from any deposit
account in Home (other than a negotiable order of withdrawal account or other
demand deposit account). Wire payments will not be accepted for the purchase of
Common Stock.
Interest will be paid by Home on payments for Common Stock made in
cash or by check, bank draft, negotiable order of withdrawal or money order at
Home's statement savings rate. Such interest shall be paid from the date the
order is accepted for processing and payment in good funds is received by Home
until consummation or termination of the Conversion. Home shall be entitled to
invest all amounts paid on subscriptions for Common
19
<PAGE>
Stock for its own account until completion or termination of the Conversion.
Home may not knowingly lend funds or otherwise extend credit to any person to
purchase Common Stock.
The Stock Order Forms contain appropriate means by which authorization
of accounts may be made to pay for subscribed shares. Funds authorized for
withdrawal will continue to earn interest at the applicable contract interest
rate until completion or termination of the Conversion or, in the case of an
order submitted in the Community Offering, until it is determined that such
order cannot or will not be accepted. Notwithstanding any regulatory provision
regarding penalties for early withdrawal from certificate accounts, payment for
subscribed shares of Common Stock will be permitted through authorization of
withdrawals from such accounts without the assessment of such penalties.
However, if after such withdrawal the applicable minimum balance requirement
ceases to be satisfied, such certificate account will be canceled and the
remaining balance thereof will earn interest at Home's statement savings rate.
Upon completion or termination of the Conversion, Home will return to
subscribers all amounts paid with subscriptions which are not applied to the
purchase price for shares, plus interest at its statement savings rate from the
date good funds are received until the consummation or termination of the
Conversion, and Home will release deposit account withdrawal orders given in
connection with the subscriptions to the extent funds are not withdrawn and
applied toward the purchase of shares.
Persons in Non-Qualified or Foreign Jurisdictions
The Holding Company will make reasonable efforts to comply with the
securities laws of all states of the United States in which Eligible Account
Holders, Supplemental Eligible Account Holders, or Other Members entitled to
subscribe for shares of Common Stock reside. However, the Holding Company shall
not offer or sell shares of Common Stock or Subscription Rights under the Plan
of Conversion in a foreign country, and may elect not to offer or sell shares of
Common Stock or Subscription Rights under the Plan of Conversion in a state in
the United States (i) where a small number of persons otherwise eligible to
subscribe for shares under the Plan of Conversion reside or (ii) the Holding
Company 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 requirement that the Holding Company, Home or any employee or
representative thereof register as a broker, dealer, agent or salesperson or
register or otherwise qualify the Subscription Rights or Common Stock for sale
in such state. No payments will be made in lieu of the granting of Subscription
Rights to persons residing in such jurisdictions.
Marketing Arrangements
Home has retained Trident Securities to consult with and advise Home
and the Holding Company and to assist the Holding Company, on a best-efforts
basis, in the marketing of shares in the Offerings. Trident Securities is a
broker-dealer registered with the SEC and a member of the National Association
of Securities Dealers, Inc. ("NASD"). Trident Securities is headquartered in
Raleigh, North Carolina, and its telephone number is (919) 781-8900. Trident
Securities will assist Home and the Holding Company in the Conversion as
follows: (i) it will act as marketing advisor with respect to the Subscription
Offering and will represent the Holding Company as placement agent on a best-
efforts basis in the sale of the Common Stock in the Community Offering and
Syndicated Community Offering, if any; (ii) it will conduct training sessions to
ensure that directors, officers and employees of Home are knowledgeable
regarding the Conversion process; and (iii) it will provide assistance in the
establishment and supervision of the Stock Information Center, including
training staff to properly record and tabulate orders for the purchase of Common
Stock and to respond appropriately to customer inquiries.
For rendering its services, Home has agreed to pay Trident Securities
(a) a management fee equal to four tenths of one percent (.40%) of the aggregate
dollar amount of Common Stock sold in the Subscription Offering and the
Community Offering and (b) a commission equal to 1.65% of the aggregate dollar
amount of Common Stock sold in the Subscription Offering and the Community
Offering, excluding shares purchased by the ESOP, directors, executive officers
and their "associates" (as defined in the Plan of Conversion). Home has also
agreed to pay to
20
<PAGE>
Selected Dealers, if any, negotiated commissions. Home has already paid Trident
Securities $10,000 toward amounts due to such agent.
Home has agreed to reimburse Trident Securities for its reasonable
out-of-pocket expenses, including but not limited to travel, communications,
legal fees and postage, in an amount not exceeding $37,500, and to indemnify
Trident Securities against certain claims or liabilities, including certain
liabilities under securities laws. Total fees and commissions to Trident
Securities, excluding expenses, are expected to be between $537,802 and $733,438
at the minimum and 15% above the maximum, respectively, of the Valuation Range.
See "PRO FORMA DATA" in the Prospectus for the assumptions used to determine
these estimates.
Minimum and Maximum Purchase Limitations
Each person subscribing for Common Stock in the Conversion must
subscribe for at least 50 shares of the Common Stock to be offered in the
Conversion. In addition, the maximum number of shares of Common Stock which may
be purchased in the Conversion by any person or entity (or persons or entities
exercising Subscription Rights through a single account), or group of persons or
entities acting in concert, is 40,000 shares. In addition, no person or entity,
or group of persons or entities acting in concert, together with any associates,
may subscribe for more than 100,000 shares of Common Stock issued in the
Conversion; provided, however, that the ESOP may purchase up to 8% of the number
of shares offered in the Conversion (312,800 shares, assuming the issuance of
3,910,000 shares). Any shares held by the ESOP and attributed to a natural
person shall not be aggregated with other shares purchased directly by or
otherwise attributable to that natural person.
The Board of Directors of Home may in its absolute discretion (i)
decrease the 40,000 share maximum purchase price limitation to an amount not
less than 1% of the number of shares offered and sold in the Conversion or (ii)
increase such 40,000 share maximum purchase limitation to an amount of up to 5%
of the shares of Common Stock offered and sold. Any decrease or increase in the
maximum purchase limitation by Home's Board of Directors may occur at any time
prior to consummation of the Conversion, either before or after the Special
Meeting on ________________, 1996. In the event the 40,000 share maximum
purchase limitation is increased, any subscriber in the Subscription, Community
or Syndicated Community Offering who has subscribed for 40,000 shares and
certain other large subscribers in the discretion of the Holding Company, shall
be given the opportunity to increase their subscriptions up to the then
applicable maximum purchase limitation.
The Plan of Conversion further provides that for purposes of the
foregoing limitations the term "associate" is used to indicate any of the
following relationships with a person:
(i) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person or who is a
director or officer of Home, the Holding Company or any
subsidiary of Home or of the Ho lding Company;
(ii) any corporation or organization (other than Home, the Holding
Company or a majority-owned subsidiary of Home or the Holding
Company) of which the person is an officer or partner or is,
directly or indirectly, the beneficial owner of 10% or more of
any class of equity security; and
(iii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person
serves as a trustee or in a similar fiduciary capacity, except
for any tax-qualified employee stock benefit plan or any
charitable trust which is exempt from federal taxation pursuant
to Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code").
For purposes of the foregoing limitations, (i) directors and officers
of Home or the Holding Company shall not be deemed to be associates or a group
of persons acting in concert solely as a result of their serving in such
capacities, (ii) the ESOP will not be deemed to be acting in concert with any of
its trustees for purposes of determining the number of shares which any such
trustee, individually, may purchase and (iii) shares of Common
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<PAGE>
Stock held by the ESOP and attributed to an individual will not be aggregated
with other shares purchased directly by, or otherwise attributable to, that
individual.
For purposes of the foregoing limitations, persons will be deemed to
be "acting in concert" if they are (i) knowingly participating in a joint
activity or conscious parallel action towards a common goal (whether or not
pursuant to an express agreement), with respect to the purchase, ownership,
voting or sale of Common Stock or (ii) engaged in a combination or pooling of
voting or other interests in the securities of the Holding Company for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. The Holding Company and Home
may presume that certain persons are acting in concert based on, among other
things, the fact that such persons have filed joint Schedules 13D with the SEC
with respect to other companies.
Approval, Interpretation, Amendment and Termination
Under the Plan of Conversion, the terms of the Administrator's
approval, and applicable North Carolina conversion regulations, consummation of
the Conversion is subject to satisfaction of certain conditions, including the
following: (i) approval of the Plan of Conversion by the affirmative vote of a
majority of the votes eligible to be cast by members of Home at the Special
Meeting; (ii) sale of shares of Common Stock for an aggregate purchase price
equal to not less than the minimum or more than the maximum of the Valuation
Range unless the aggregate purchase price is increased to as much as 15% above
the maximum with the consent of the Administrator and FDIC, and (iii) receipt by
the Holding Company and Home of favorable opinions of counsel or other tax
advisor as to the federal and state tax consequences of the Conversion. See "--
Income Tax Consequences."
If all conditions for consummation of the Conversion are not
satisfied, no Common Stock will be issued, Home will continue to operate as a
North Carolina-chartered mutual savings bank, all subscription funds will be
promptly returned with interest at Home's statement savings rate, and all
deposit withdrawal authorizations (and holds placed on such accounts) will be
canceled. In such an event, the Holding Company would not acquire control of
Home.
All interpretations by Home and the Holding Company of the Plan of
Conversion and of the Stock Order Forms and related materials for the
Subscription and Community Offerings will be final, subject to the authority of
the Administrator. Home and the Holding Company may reject Stock Order Forms
that are not properly completed. However, the Holding Company and Home retain
the right, but will not be required, to waive irregularities in submitted Stock
Order Forms or to require the submission of corrected Stock Order Forms or the
remittance of full payment for all shares subscribed for by such dates as they
may specify. In addition, the Plan of Conversion may be substantively amended
by a two-thirds vote of Home's Board of Directors at any time prior to the
Special Meeting, and at any time thereafter by a two-thirds vote of Home's Board
of Directors with the concurrence of the Administrator. If Home determines upon
the advice of counsel and after consultation with the Administrator that any
such amendment is material, subscribers would be given the opportunity to
increase, decrease or cancel their subscriptions. Also, as required by the
regulations of the Administrator, the Plan of Conversion provides that the
transactions contemplated thereby may be terminated by a two-thirds vote of
Home's Board of Directors at any time prior to the Special Meeting and may be
terminated by a two-thirds vote of Home's Board of Directors at any time
thereafter but prior to the completion of the Conversion with the concurrence of
the Administrator, notwithstanding approval of the Plan of Conversion by the
Members at the Special Meeting.
Income Tax Consequences
Home has received an opinion from its special counsel, Brooks, Pierce,
McLendon, Humphrey & Leonard, L.L.P., of Greensboro, North Carolina, to the
effect that for federal income tax purposes: (i) the Conversion will constitute
a tax free reorganization with respect to Home and no gain or loss will be
recognized by Home either in its mutual or stock form; (ii) no gain or loss will
be recognized by Home as a result of the transfer of the Subscription Rights to
Eligible Account Holders, Supplemental Eligible Account Holders, Other Members,
the
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<PAGE>
ESOP and directors, officers and employees of Home; (iii) no gain or loss will
be recognized by Home upon the purchase of Home's stock by the Holding Company
or upon the sale by the Holding Company of its Common Stock; (iv) no gain or
loss will be recognized by Home's depositors with respect to their deposit
accounts at Home as a consequence of the Conversion; (v) the tax basis of
depositors' deposit accounts at Home will not be changed as a result of the
Conversion; (vi) assuming the Subscription Rights have no value, no gain or loss
will be recognized by Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members, or directors, officers and employees of Home upon either
the issuance to them of the Subscription Rights or the exercise or lapse
thereof; (vii) no gain or loss will be recognized by Eligible Account Holders or
Supplemental Eligible Account Holders upon the distribution to them of interests
in the Liquidation Account; (viii) assuming the Subscription Rights have no
value, the tax basis for Common Stock purchased in the Conversion will be the
amount paid therefor; and (ix) the tax basis of interests in the Liquidation
Account will be zero. Home has been further advised by its special counsel,
Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., that the tax effects of
the Conversion under North Carolina tax laws will be consistent with the federal
income tax consequences.
Several of the foregoing legal opinions are premised on the assumption
that the Subscription Rights will have no value. Home has been advised by
Ferguson that, in its opinion, the Subscription Rights will not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are non-transferable, are of short duration and afford the recipients the right
only to purchase Common Stock at a price equal to its estimated fair market
value as of the date such rights are issued, which will be the same price paid
by all purchasers in the Conversion. The opinion of Ferguson is not binding on
the Internal Revenue Service ("IRS") and if the Subscription Rights were
ultimately determined to have ascertainable value, recipients of Subscription
Rights would have to include in gross income an amount equal to the value of the
Subscription Rights received by them. The basis of the Common Stock purchased
pursuant to Subscription Rights would be increased by the amount of income
realized with respect to the receipt or exercise of the Subscription Rights.
Moreover, recipients of Subscription Rights could then have to report the
transaction to the IRS. Each Eligible Account Holder, Supplemental Eligible
Account Holder, Other Member or other recipient of Subscription Rights is
encouraged to consult with his, her or its own tax advisor as to the tax
consequences in the event the Subscription Rights are deemed to have
ascertainable value.
BENEFITS TO DIRECTORS AND OFFICERS
In connection with the Conversion, certain benefits will be provided to
directors, officers and employees of Home.
Employment Agreement. In connection with the Conversion, Home will
enter into employment agreements with Carl M. Hill, the President and Chief
Executive Officer of Home and R. Ronald Swanner, the Executive Vice President of
Home. Mr. Hill's and Mr. Swanner's employment agreements provide for initial
annual salaries of $157,320 and $101,160, respectively. See "MANAGEMENT OF HOME
- -- Employment Agreements" in the Prospectus.
Severance Plan. In connection with the Conversion, Home intends to
adopt a Severance Plan which would benefit its employees in the event there was
a change in control of the Holding Company. See "MANAGEMENT OF HOME --
Severance Plan in the Prospectus.
Restricted Stock Grants. Pursuant to a proposed MRP, which the Boards
of Directors of the Holding Company and Home intend to approve and which is
subject to stockholder approval, directors, officers and certain employees of
Home would receive restricted stock grants of a number of shares of Common Stock
equal to 4% of the shares issued in the Conversion (between 115,600 and 156,400
shares, assuming the issuance of between 2,890,000 and 3,910,000 shares).
Assuming that the shares issued pursuant to the MRP have a value of $10.00 per
share, such shares would have a value of between $1,156,000 and $1,564,000.
23
<PAGE>
It is currently expected that 5% of the shares available under the MRP
will be granted to each non-employee director. If 3,910,000 shares were issued
in the Conversion, each non-employee director would receive restricted stock
grants of 7,820 shares which, assuming such shares had a value of $10.00 per
share, would have a value of $78,200.
Under the proposed MRP, Home's two executive officers, Carl M. Hill
and R. Ronald Swanner, would receive restricted stock grants for shares equal to
approximately 25% and 20% respectively, of the shares available under the MRP.
If 3,910,000 shares were issued in the Conversion and if such shares had a value
of $10.00 per share, Mr. Hill and Mr. Swanner would receive restricted stock
grants of 39,100 shares and 31,280 shares, respectively, having a value of
$391,000 and $312,800, respectively. Upon approval of the MRP, all of the other
employees of Home will be granted, in the aggregate, 35% of the shares available
under the MRP. Assuming the issuance of 3,910,000 shares in the Conversion, the
other employees would receive an aggregate of 54,740 shares which, assuming
such shares had a value of $10.00 per share, would have a value of $547,400.
If the MRP is submitted to and approved by the stockholders of the
Holding Company at a meeting of the stockholders held no sooner than six months
following the Conversion, the MRP will provide that shares granted under the MRP
will be forfeited unless recipients of grants satisfy certain vesting
requirements. If the MRP is submitted to and is approved by the stockholders of
the Holding Company at a meeting of stockholders held no sooner than one year
following the Conversion, the MRP will provide that, under certain conditions,
the grants may vest on an accelerated basis. Grants of restricted stock under
the MRP will be made at no cost to recipients. See "MANAGEMENT OF HOME --
Proposed Management Recognition Plan" in the Prospectus.
Stock Options. Pursuant to the proposed stock option plan (the "Stock
Option Plan") which the Boards of Directors of the Holding Company and Home
intend to approve, and which is subject to stockholder approval, directors and
employees of Home would receive options to purchase a number of shares of Common
Stock equal to 10% of the shares issued in the Conversion (between 289,000 and
391,000 shares, assuming the issuance of between 2,890,000 and 3,910,000
shares).
It is currently expected that 5% of the shares available under the
proposed Stock Option Plan, will be granted to each non-employee director. If
3,910,000 shares were issued in the Conversion, each non-employee director would
receive options to purchase 19,550 shares. It is currently expected that Mr.
Hill and Mr. Swanner will be granted options to purchase 25% and 20%,
respectively, of the shares available under the Stock Option Plan. If 3,910,000
shares were issued in the Conversion, Mr. Hill and Mr. Swanner would receive
options to purchase 97,750 shares and 78,200 shares, respectively. Under the
proposed Stock Option Plan, the other officers of Home will be granted, in the
aggregate, options to purchase 35% of the shares available under the Stock
Option Plan. Assuming the issuance of 3,910,000 shares in the Conversion, the
other officers would receive options to purchase an aggregate of 136,850 shares.
If the Stock Option Plan is submitted to and approved by the
stockholders of the Holding Company at a meeting of the stockholders to be held
no sooner than six months following the Conversion, the provisions of the Stock
Option Plan will provide that options granted under the Stock Option Plan will
be forfeited unless recipients of grants satisfy certain vesting requirements.
If the Stock Option Plan is submitted to and approved by the stockholders of the
Holding Company at a meeting of stockholders held no sooner than one year
following the Conversion, the provisions of the Stock Option Plan will provide
that under certain conditions, the grants may vest on an accelerated basis.
The exercise price of the options will be the fair market value of the Common
Stock at the time the options are granted (which will be after the Stock Option
Plan is approved by the Holding Company's stockholders), and the options will
have terms of 10 years or less. Options would be issued at no cost to
recipients. See "MANAGEMENT OF HOME -- Proposed Stock Option Plan" in the
Prospectus.
ESOP. In connection with the Conversion, Home has established the
ESOP. As part of the Conversion, the ESOP intends to borrow funds from the
Holding Company and to use such funds to purchase 8% of the shares of Common
Stock to be issued in the Conversion, estimated to be between 231,200 and
312,800 shares, assuming
24
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the issuance of between 2,890,000 and 3,910,000 shares. See "MANAGEMENT OF
HOME -- Employee Stock Ownership Plan" in the Prospectus.
ANTICIPATED STOCK PURCHASES BY MANAGEMENT
Directors, officers and employees of Home will be entitled to
subscribe for shares of Common Stock in the Subscription Offering in their
capacities as such and to the extent they qualify as Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members. Shares purchased by
such persons will be purchased at the same price per share--$10.00--that will be
paid by other subscribers. They may also purchase Common Stock in the Community
Offering or in the Syndicated Community Offering, if any, at the same price and
subject to the maximum purchase limitations applicable to all purchasers of
shares in the Conversion.
The following table sets forth for each of the executive officers and
directors of Home who intend to purchase Common Stock, and for all executive
officers and directors as a group the aggregate dollar amount of Common Stock
for which such director or executive officer has informed Home he intends to
subscribe. The amounts reflected in the table are estimates only and the actual
shares of Common Stock actually subscribed for by the listed individuals may
differ from the amounts reflected in the table. The following table assumes
that 3,910,000 shares of Common Stock will be issued and that sufficient shares
will be available to satisfy the subscriptions of Home's executive officers and
directors.
<TABLE>
<CAPTION>
Anticipated
Anticipated Number As a
Amount of Shares Percent
to be Paid to be of Shares
Name for Shares /(1)/ Purchased Offered
- ---- ---------------- ----------- ----------
<S> <C> <C> <C>
Carl M. Hill, President, CEO and Director $400,000 40,000 1.02%
Caldwell A. Holbrook, Jr., Director 20,000 2,000 0.05
Joel A. Huneycutt, Director 100,000 10,000 0.26
Douglas Dwight Stokes, Director 150,000 15,000 0.38
R. Ronald Swanner, Executive Vice President 10,000 1,000 0.03
and Director
Greg E. Underwood, Director 15,000 1,500 0.04
-------- ------ ----
Total $695,000 69,500 1.78%
======== ====== ====
</TABLE>
______________________
(1) Subscriptions by the ESOP are not aggregated with shares of Common Stock
purchased by the executive officers and directors listed above. See
"MANAGEMENT OF HOME -- Employee Stock Ownership Plan" in the Prospectus.
Also, grants under the proposed MRP and shares subject to option under the
proposed stock option plan, if approved by the stockholders of the Holding
Company at a meeting of stockholders following the Conversion, are not
aggregated with shares of Common Stock purchased by the executive officers
and directors listed above. See "MANAGEMENT OF HOME -- Proposed Management
Recognition Plan" and "-- Proposed Stock Option Plan" in the Prospectus.
Without the prior written consent of the Administrator, shares of Common
Stock purchased by directors or executive officers of Home in the Conversion
cannot be sold during a period of one year following the
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<PAGE>
Conversion, except upon death of the director or executive officer. Such
restriction also applies to any shares issued to such person as a stock
dividend, stock split or otherwise with respect to any of such originally
restricted stock.
In addition, the North Carolina conversion regulations provide that
directors and executive officers and their associates are prohibited from
purchasing outstanding shares of Common Stock for a period of three years
following the Conversion, except from or through a broker or dealer registered
with the SEC or the Secretary of State of North Carolina, unless the prior
written approval of the Administrator is obtained. This provision does not
apply to negotiated transactions involving more than 1% of the Holding Company's
outstanding Common Stock or to purchases of stock made by or held by one or more
tax-qualified or non-tax-qualified employee stock benefit plans of Home or the
Holding Company which may be attributable to individual executive officers or
directors. Purchases and sales of Common Stock by officers and directors will
also be subject to the short-swing trading prohibitions contained in Section
16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and the short-swing trading and other rules promulgated pursuant to the Exchange
Act.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Conversion is completed, it is presently
anticipated that such net proceeds will be between $27,836,000 and $37,840,000,
based on the current Valuation Range. If the gross proceeds of the shares sold
are increased to 15% above the maximum of the Valuation Range, it is anticipated
that net proceeds will equal $43,593,000. See "PRO FORMA DATA" in the
Prospectus for the assumptions used to arrive at these amounts. The actual net
proceeds may vary materially from the estimated amounts described herein. The
estimated amount of net proceeds includes proceeds from the sale of the shares
which are expected to be purchased by the ESOP in the Subscription Offering with
funds borrowed from the Holding Company. The amount loaned to the ESOP to
enable such purchases is estimated to range from $2,312,000 (if 2,890,000 shares
are issued) to $3,128,000 (if 3,910,000 shares are issued). See "MANAGEMENT OF
HOME -- Employee Stock Ownership Plan" in the Prospectus.
After first deducting the amount of the net proceeds used by the
Holding Company to make the loan to the ESOP (estimated to range from $2,312,000
to $3,128,000), it is expected that the Holding Company will retain
approximately 50% of the remaining net proceeds of the Offerings and will pay
the balance of the net proceeds to Home in exchange for all of the common stock
of Home to be issued in connection with the Conversion. The Holding Company
expects to use the portion of the net proceeds it retains for working capital
and investment purposes. The Holding Company does not expect to have
significant operating expenses and anticipates that it will initially invest the
net proceeds it retains primarily in interest-bearing deposits, U.S. government,
federal agency and other marketable securities with terms of up to five years.
The types and amounts of such investments will vary from time to time based upon
the interest rate environment, asset/liability mix considerations and other
factors. The net proceeds retained by the Holding Company also may be used to
support the future expansion of operations of the Holding Company through
acquisitions of other financial institutions. The Holding Company has no
pending agreements or understandings regarding any such acquisitions, and there
are no pending negotiations regarding any such acquisitions. No such
acquisitions are planned at this time.
Upon completion of the Conversion, the Board of Directors of the
Holding Company will have the authority to adopt stock repurchase plans, subject
to statutory and regulatory requirements. Based upon facts and circumstances
which may arise following the Conversion, the Board of Directors of the Holding
Company may determine to repurchase stock in the future. Such facts and
circumstances may include but are not limited to (i) market and economic factors
such as the price at which the Common Stock is trading, the volume of trading,
the attractiveness of other investment alternatives in terms of the rates of
return and risks involved in the investments, the ability to increase the book
value and earnings per share of the remaining outstanding shares, and an
improvement in the Holding Company's return on equity; (ii) the reduction of
dilution to stockholders caused by having to issue additional shares to cover
the exercise of stock options or to fund employee stock benefit plans; and
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(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 the determination of the
Board of Directors that both the Holding Company and Home will be capitalized in
excess of applicable regulatory requirements after any such repurchases and that
capital will be adequate taking into account, among other things, the level of
nonperforming assets and other risks, the Holding Company's and Home's current
and projected results of operations and asset/liability structure, the economic
environment and tax and other regulatory considerations. No stock repurchases
may be made within one year after the Conversion without the approval of the
Administrator. Federal regulations require that the Holding Company must notify
the Federal Reserve prior to repurchasing Common Stock for in excess of 10% of
its net worth during any rolling 12 month period. The Holding Company does not
intend to repurchase any Common Stock during the first year following the
Conversion.
The portion of the net proceeds paid to Home in the Conversion will
have the immediate effect of providing Home with substantial new capital which
will significantly increase its net worth and regulatory capital. See "PRO
FORMA DATA" and "SUPERVISION AND REGULATION -- Regulation of Home -- Capital
Requirements Applicable to Home" in the Prospectus. The net proceeds paid to
Home will become part of Home's general funds and will be invested primarily in
mortgage, consumer and other loans and investments consisting primarily of U.S.
government and federal agency obligations in accordance with Home's lending and
investment policies. The relative amounts to be invested in each of these types
of investments will depend upon loan demand, rates of return and asset/liability
matching considerations at the time the investments are to be made. Management
is not able to predict the yields which will be produced by the investment of
the proceeds of the Conversion because such yields will be significantly
influenced by general economic conditions and the interest rate environment
existing at the time the investments are made. Remaining net proceeds paid to
Home will be used for general corporate purposes, including possibly opening
another branch office, although Home has no existing plans to open any
additional office in the future. If the MRP is approved by the stockholders of
the Holding Company, as soon as practicable thereafter, the MRP will acquire a
number of shares of Common Stock equal to 4% of the number of shares issued in
the Conversion. See "MANAGEMENT OF HOME -- Proposed Management Recognition
Plan" in the Prospectus. Such shares may be acquired in the open market or
acquired through the Holding Company's issuance of authorized but unissued
shares. In the event shares are acquired in the open market, the funds for such
purchase will be provided by Home from the proceeds of the Conversion and its
other capital. It is estimated that between 115,600 and 156,400 shares will be
acquired by the MRP, assuming the issuance of between 2,890,000 and 3,910,000
shares, respectively, in the Conversion. If all such shares were acquired by
the MRP in the open market, and if such shares were acquired at a price of
$10.00 per share, Home would contribute between $1,156,000 and $1,564,000,
respectively, to the MRP for this purpose.
The proceeds of the Offerings will result in an increase in Home's net
worth and regulatory capital and may enhance the potential for growth through
increased lending and investment activities, branch acquisitions, business
combinations or otherwise. Payments for shares of Common Stock of the Holding
Company made through the withdrawal of existing deposit accounts at Home will
not result in the receipt of new funds for investment by Home.
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Holding Company will
have the authority to declare dividends on the Common Stock, subject to
statutory and regulatory requirements. The Board of Directors of the Holding
Company intends to establish a dividend policy following the Conversion to pay a
regular quarterly dividend at a rate to be determined. Declarations of
dividends, if any, by the Holding Company's Board of Directors will depend upon
a number of factors, including investment opportunities available to the Holding
Company and Home, capital requirements, regulatory limitations, the Holding
Company's and Home's results of operations and financial condition, tax
considerations and general economic conditions. Upon review of such
considerations, the Board of Directors of the Holding Company may authorize
dividends to be paid in the future if it deems such
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payment appropriate and in compliance with applicable law and regulation. No
assurances can be given that any dividends will in fact be paid on the Common
Stock or, if dividends are paid, that they will not be reduced or discontinued
in the future. In addition, the Board of Directors may determine from time to
time that it is prudent to pay special cash dividends. Special cash dividends,
if paid, may be in addition to, or in lieu of, regular cash dividends. The Board
will determine whether to pay special cash dividends based upon its review of
the Holding Company's current and anticipated needs for capital and its current
and anticipated levels of capital and earnings. Special dividends will not be
paid during periods when the Board determines that the Holding Company needs
funds or that it can deploy funds at desirable levels of profitability. On the
other hand, the Board of Directors may decide to pay special dividends at times
when the Board determines that payment of such dividends uses such funds to
greater advantage than deploying them in the Holding Company's operations. Like
regular cash dividends, there can be no assurances that special dividends will
be paid, or, if paid, will continue to be paid. The Holding Company and Home
have agreed with the FDIC that any cash dividends paid to stockholders during
the twelve-month period following the closing of the Conversion will be paid out
of accumulated earnings and profits (as computed for federal income tax
purposes) and will not constitute or be treated for tax purposes as returns of
capital to stockholders.
The sources of income to the Holding Company initially will consist of
income from investments and dividends paid by Home to the Holding Company, if
any. Consequently, future declarations of cash dividends by the Holding Company
may depend upon dividend payments by Home to the Holding Company, which payments
are subject to various restrictions. Under current North Carolina regulations,
Home could not declare or pay a cash dividend if the effect thereof would be to
reduce its net worth to an amount which is less than the minimum required by the
FDIC and the Administrator. In addition, for a period of five years after the
consummation of the Conversion, Home will be required, under existing
regulations, to obtain the prior written approval of the Administrator before it
can declare and pay a cash dividend on its capital stock in an amount in excess
of one-half of the greater of (i) its net income for the most recent fiscal
year, or (ii) the average of its net income after dividends for the most recent
fiscal year and not more than two of the immediately preceding fiscal years, if
applicable. See "SUPERVISION AND REGULATION -- Regulation of Home --
Restrictions on Dividends and Other Capital Distributions" in the Prospectus.
As a result of this limitation, if Home had been a stock institution at the end
of fiscal 1995, it could not have paid a dividend to the Holding Company, its
sole stockholder, in excess of approximately $1.2 million without the approval
of the Administrator. As a converted institution, Home 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. See "THE
CONVERSION -- Effects of Conversion -- Liquidation Rights" and "-- Liquidation
Rights After the Conversion." Also, see "TAXATION -- Federal Income Taxation"
in the Prospectus for a discussion of federal income tax provisions that may
limit the ability of Home to pay dividends to the Holding Company without
incurring a recapture tax.
REGISTRATION REQUIREMENTS
The Holding Company will register its Common Stock with the SEC
pursuant to Section 12(b) of the Exchange Act in connection with the Conversion
and will not deregister the Common Stock for a period of 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.
ADDITIONAL INFORMATION AND STOCK ORDER FORMS
The Prospectus contains detailed information about the Conversion, the
Holding Company and Home, including, but not limited to the following: audited
financial statements of Home; historical capitalization of Home; pro forma
consolidated earnings and stockholder's equity for the Holding Company and Home;
historical and pro-forma regulatory capital; management's discussion and
analysis of financial condition and results of operations;
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Home's business and management; compensation and other benefits of directors and
officers; a description of the Common Stock; certain regulations applicable to
Home and the Holding Company; anti-takeover provisions of the Holding Company
and Home; and additional information about the business and financial condition
of Home. A copy of the Prospectus accompanies this Proxy Statement.
The Holding Company has filed a registration statement with the SEC on
Form S-1 under the Securities Act of 1933, with respect to the Common Stock
offered hereby. As permitted by the rules and regulations of the SEC, the
Prospectus does not contain all of the information set forth in the registration
statement. Such information can be examined and copied at the public reference
facilities of the SEC located at Room 1024, 450 Fifth Street, N. W., Washington,
D.C. 20549, and at the regional offices of the SEC at 75 Park Place, Fourteenth
Floor, New York, New York 10007 and Room 3190, John C. Kluczynski Building, 230
South Dearborn Street, Chicago, Illinois 60604. Copies of such material can be
obtained by mail from the SEC at prescribed rates from the Public Reference
Section of the SEC at 450 Fifth Street, N. W., Washington, D.C. 20549. The
statements contained in the Prospectus as to the contents of any contract or
other document filed as an exhibit to the registration statement are, of
necessity, brief descriptions thereof and are not necessarily complete; each
such statement is qualified by reference to such contract or document.
Home has filed an Application to Convert a Mutual Savings Bank to a
Stock Owned Savings Bank with the Administrator. Pursuant to the North Carolina
conversion regulations, this Proxy Statement omits certain information contained
in such Application. The Application, which includes a copy of Ferguson's
independent appraisal, may be inspected at the office of the Administrator,
Savings Institutions Division, North Carolina Department of Commerce, Tower
Building, Suite 301, 1110 Navaho Drive, Raleigh, North Carolina 27609. A copy
of Ferguson's independent appraisal is also available for inspection at the
Stock Information Center.
Any questions about the Conversion or the Special Meeting, including
questions about proxy voting procedures, should be directed to Home's Stock
Information Center at (704) ________.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY THE COMMON STOCK. SUCH OFFERS ARE MADE ONLY BY THE PROSPECTUS.
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